FED STIFFENS RESTRICTIONS ON MORTGAGE LENDERS

The Federal Reserve is clamping down on what it called “deceptive acts and practices” by some mortgage lenders that it says helped lead to the sub-prime mortgage crisis. The new rules, which apply to all banks and other lenders and specifically target sub-prime loans and borrowers, will take effect Oct. 1.

KEEP THIS IN MIND…

• The new rules “are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable home ownership,” said Federal Reserve Chairman Ben Bernanke.
• The new rules will prohibit loans to borrowers who can’t repay the loan from income and assets other than the home’s value and will require lenders to verify the borrower’s income and assets. Prepayment penalties are banned for the first four years of any adjustable rate sub-prime loan and for the first two years on other sub-prime loans. Lenders also must establish escrow accounts for property taxes and insurance for all first lien loans.
• Also banned are seven misleading advertising practices, including use of the word “fixed” to describe a rate or payment that changes at any time during the loan term. Other prohibited practices include loan comparison advertising (unless all payments and rates are disclosed), foreign-language ads where disclosures are presented in English, and encouraging appraisers to misrepresent a home’s value. The rules also will require lenders to credit payments on the date of receipt, prohibit pyramiding of loans, and require a good faith estimate of costs and payments on any loan application for a home secured by its value (including home equity loans and refinancing) within three days. Further, borrowers cannot be charged any fees other than to obtain a credit report before receiving that estimate.

To read the full story, please click the Mortgage Picture above. (Information provided by the California Association of Realtors)

HOW HOUSING RESCUE BILL CAN HELP

A bill passed by the House on Wednesday will assist up to 2 million borrowers in danger of foreclosure by allowing them to refinance their current mortgages with a Federal Housing Administration (FHA)-backed loan. The bill also allocates funding to assist Fannie Mae and Freddie Mac. Most borrowers will receive substantial savings on FHA backed loans, which carry reasonable interest rates that are fixed for the life of the loan. It also would give the FHA new authority to guarantee repayment of up to $300 billion in mortgages if a lender agrees to write down the loan principal below a home’s current appraised value. First-time home buyers would receive a tax credit.

Additionally, states would be authorized to issue an additional $11 billion of tax-exempt bonds to refinance sub-prime loans, provide loans to first-time home buyers and fund the construction of low-income rental housing. Finally, it would permanently raise the limit to $625,000 for mortgages that Fannie Mae and Freddie Mac could purchase. The bill now goes to the Senate for approval and then to President Bush, who is expected to sign the bill into law.

KEEP THIS IN MIND…

• To qualify for the housing assistance program, homeowners must live in their home and have loans that were issued between January 2005 and June 2007. They also must be spending at least 40 percent of their gross monthly income on all household debt. Borrowers do not have to be in default, but they must show proof that they will not be able to continue making their existing mortgage payments.
• Prior to receiving an FHA-backed mortgage, homeowners must first pay off any other debt on the home, such as a home equity loan or line of credit. Borrowers also are not permitted to take out another home equity loan for at least five years, unless it’s used to pay for the necessary upkeep of a home and is approved by the FHA. Total debt cannot exceed 95 percent of the home’s appraised value at the time of appraisal.
• The program is voluntary, so the original lender(s) must agree to rework the loan before a homeowner starts the application process. Each loan must be underwritten by an FHA-approved lender and will be evaluated on a case-by-case basis. Homes will be re-appraised and banks will verify income statements, bank accounts, job histories and credit scores.
• Although there are little up-front costs for borrowers, consumers receiving a refinanced loan must agree to certain terms, including paying an insurance premium of 1.5 percent of the principal annually to the FHA.

To read the full story, please click the Beyond the Headlines image above. (Information provided by the California Association of Realtors)