New Financial Reform Protects Mortgage Borrowers

Earlier this week, Congress passed some new financial reform legislation that is going to protect mortgage borrowers from predatory lenders and other abuse that has led to the economic downturn in the housing market. Unfortunately, some analysts in the mortgage industry are afraid that the new reforms may cause the home prices to increase.

One of the new mandates of the bill requires mortgage lenders to make sure that borrowers have the financial capabilities to make their mortgage payments. This means that they will have to verify their job and other income before approving the loan. Other stipulations in the bill will also restrict lenders from adding costly features to their mortgage agreements, including penalties for prepaying the loan and paying money to brokers who encourage borrowers to take loans which cost more.

In addition to those regulations, the bill passed by Congress also sets up a consumer protection agency which will be designed specifically to monitor the housing market and lender practices. The agency will help ensure that loan contracts for homes are easier for the everyday person to understand so they know what they are signing when they get the loan. Borrowers will also be able to shop around for the best mortgage loan. According to Ken Rosen at UC Berkeley, the consumer protection aspect of the bill is designed to control some of the practices that got out of control in recent years and got us into the mess that we are in today.

Some analysts are skeptical of how effective the new reforms are going to be, though. Kimberly S. Jones, a policy advocate for the Center for Responsible Lending in San Francisco, said that predatory lenders always find a way to get around the regulations. As a result, consumers will need to be more careful when signing up for mortgages. In essence, it is the borrower’s responsibility to know what they are getting into when they sign up for something as important as a mortgage loan. The bill, however, makes it easier for consumers who are not experienced in the mortgage industry to have a better understanding of what is involved. And with mortgage rates at historic lows right now, there are more first-time homebuyers in the industry applying for mortgages so the reform is coming at a great time.