Mortgage Loans Impacted by New Financial Reforms

If you are planning on buying a home soon and taking advantage of the low mortgage rates, you should keep an eye on the latest financial reforms that could be taking place.

Much of the financial reforms being discussed in Congress and the Senate have to do with big banks and large finance. However, some of the new regulations included in the reform have officials at the Mortgage Bankers Association concerned. Here are some of the new guidelines and regulations being proposed before the July 4 recess.

Paying Loan Originators
If the proposed financial regulations get passed the way they are, lenders will no longer be allowed to pay brokers extra for suggesting more expensive loans to borrowers. For years, independent brokers were given financial incentives for putting home buyers into mortgage loans with higher interest rates than they deserve. According to Ruth Susswein, an official at Consumer Action, it’s illegal for brokers to do this.

Penalties for Prepaying
Some homeowners are able to pay large portions of their mortgage off before the scheduled deadline. Some may even come into some money and be able to pay it off completely. Unfortunately, many mortgage loans were written with language that would penalize the homeowner for doing this. In many cases, they could be charged thousands of dollars simply for paying off their mortgage a few years earlier than the terms of the loan. These penalties will be reduced under the new financial reforms that are being discussed right now.

Payment Abilities
One of the reasons we got ourselves into the mortgage mess that we are in is because banks and lenders were giving loans to home buyers who did not have the ability to make the payments. Whether they were jobless or they just didn’t make enough to make the payments, thousands of homeowners defaulted on their loans because they simply did not have the ability to make their payments.

The new legislation would prevent that from happening by making lenders more accountable for the loans they give out. They will need to document the income of home buyers before letting them purchase a home and they must have a “reasonable belief” that the people can make the loan payments before making the loan final. As weird as it sounds to put this into law, apparently it should have been done a long time ago and maybe the mortgage crisis would not have been as bad as it turned out to be.

These are just a few of the changes we can expect if the reforms get passed. There are a few more stipulations that we will cover in a future post this week. Until then, do you think these reforms are going to be good news for the mortgage industry? Or do you think they are just a quick bandage that won’t change much because it’s already too late? Let us know your thoughts.