Ryan’s Mortgage Blog:
Congress recently passed a new ruling (amending regulation Z) in lending that is aimed to ”protect consumers and facilitate responsible lending”. While I agree with protecting the consumers, some believe this may come at a cost. Some industry professionals feel this may raise the cost of loans as well as delay the closing of escrow on 1st mortgages. They argue these were the rules “their company” was following in the first place, while that may be true, not all companies were. I feel this ruling is very beneficial to the borrower. If it does cost a little more, or take a little more time, I am sure the people will settle for it as long as it cleans up the industry. Only time will tell if there is any major industry backlash from this, but I don’t foresee it.
Here are some of the key points from the ruling (straight for the federal website):
– Creditors and mortgage brokers are prohibited from coercing a real estate appraiser to misstate a home’s value.
– Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees.
– Prohibits a lender from making a loan without regard to borrowers’ ability to repay the loan from income and assets other than the home’s value.
– Ban any prepayment penalty if the payment can change in the initial four years.
– Advertising rules now require additional information about rates, monthly payments, and other loan features. The final rule bans seven deceptive or misleading advertising practices, including representing that a rate or payment is “fixed” when it can change.
– A loan is higher-priced if it is a first-lien mortgage and has an annual percentage rate that is 1.5 percentage points or more above this index, or 3.5 percentage points if it is a subordinate-lien mortgage.
– Require creditors to establish escrow accounts for property taxes and homeowner’s insurance for all first-lien mortgage loans.
The new rules take effect on October 1, 2009
If you have any questions or comments, I can be reached at RBaker@PeregrineLending.com or 805-540-0866