Stricter Mortgage Guidelines Ahead

Sheryl Landrum
LoanBiz Columnist

Article Rating , 4 out of 5 based on 1 votes

We've all heard that mortgage foreclosures are on the rise. Borrowers who took adjustable rate mortgages and negative amortization mortgage loans in the past few years are now walking away from their homes, unable to manage the higher loan payments now that their interest rates have adjusted higher.  

In view of the rash of foreclosures, Federal Bank regulators are beginning to tighten up underwriting guidelines and disclosure standards for some adjustable-rate mortgages.  So, what is the Federal Bank considering and what does this mean to you and your new home loan or refinance?

Expect to see tighter guidelines for home loans. Many borrowers used to be able to qualify for a mortgage on the initial "teaser" rate. Now, legislation is leaning toward borrowers qualifying at the fully indexed rate which can be four to six points higher.

Expect to prove mortgage application information. Stated income loans are going to become much more difficult to get; for example, many programs have discontinued letting W-2 employees state their incomes. Mortgage underwriters are going to demand appropriate documentation of income and assets before giving loan approval.

New mortgage disclosure features should help borrowers. Setting payment or interest rate caps on ARMs (adjustable rate mortgages) at reset periods will help borrowers with "payment shock." Mandating better disclosure information from lenders to clients regarding pre-payment penalties, loan product features AND risks will help discourage lenders from putting clients into inappropriate mortgage loan products. Disallowing prepayment penalties that extend beyond the initial interest-rate adjustment period may also protect borrowers.

While there may be some complaints, the legislation is geared to help homeowners qualify for mortgage loans that will allow them to keep their homes and not lose them in a few years. To give yourself additional protection against home loss, or a bad mortgage loan, be responsible with your credit and always go to a reputable loan officer or lender.

About the Author
Sheryl Landrum is a Senior Loan Officer with First Capital Mortgage in San Diego and Prudential Realty in Bonsall, California.

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