Lending Regulations
In order to protect consumers in the subprime market from unnecessary lending risks, lawmakers and other agencies are calling for tighter regulations on lenders. In the years 2005 and 2006, 20% of all subprime mortgages foreclosed, loosing almost $165 billion for American citizens in property wealth. Though the intentions of these guidelines are to protect people when borrowing money, it will also create some difficulty in qualifying for certain loans and mortgages.
Adjustable Rate Mortgages are the principle target for these new regulations. Though these types of loans provide low introductory rates, the payments become dramatically higher when the introductory period expires. For some situations, ARM loans are the perfect match. When building a house for selling purposes or remodeling before a sale, an ARM allows low payments in the beginning while requiring an adjustable rate later and often a final lump sum. However, some lenders have offered these teaser rates without truly warning the homeowner of the future ramifications. Because interest rates are steadily rising, some homeowners have found themselves stuck with a monthly payment that doubled following the introductory period, and as a result, many owners are forced into foreclosure. Recent regulations require that mortgage brokers and lenders explain sufficiently and transparently the risks involved in an adjustable rate mortgage. These disclosures must be candid and forward in order to fully warn borrowers of the realities of an adjustable rate loan.
"Stated incomes" are another issue of regulation. Previously, borrowers may use a "stated income" on their loan application rather than providing job history and income verification. In most cases, mortgage applicants will overestimate their income with hopes of a better loan qualification. This results in borrowers obtaining a loan they cannot financially support. It is now required that even stated incomes be verified, so that the accuracy is certain. Again, this may make it difficult for some borrowers to get the mortgage they want, but it will prevent more foreclosures overall.
Credit scores have always been a key factor in mortgage application, and now, many lenders are required to review an applicant's credit history for the past 24 months, rather than just one year. They are also required to take the lesser of two credit scores when another person is involved, such as a spouse, or sometimes they are able to simply take an average of the two. This will take into account the entire financial burden and responsibility of a household.
Though these regulations may seem to make the loan process more difficult, they are actually protecting many people from finding themselves in a bankrupt or foreclosure situation. By increasing the guidelines for mortgage application, the average borrower is more likely to be prepared for their qualified mortgage, and their loan is more likely to be a success.
About the Author: Peter Dellane is the President of Ability Mortgage Group, LLC, A leading Maryland Mortgage company offering low costs zero point mortgages. For more information on Maryland mortgage rates please visit www.marylandsmortgage.com.
Adjustable Rate Mortgages are the principle target for these new regulations. Though these types of loans provide low introductory rates, the payments become dramatically higher when the introductory period expires. For some situations, ARM loans are the perfect match. When building a house for selling purposes or remodeling before a sale, an ARM allows low payments in the beginning while requiring an adjustable rate later and often a final lump sum. However, some lenders have offered these teaser rates without truly warning the homeowner of the future ramifications. Because interest rates are steadily rising, some homeowners have found themselves stuck with a monthly payment that doubled following the introductory period, and as a result, many owners are forced into foreclosure. Recent regulations require that mortgage brokers and lenders explain sufficiently and transparently the risks involved in an adjustable rate mortgage. These disclosures must be candid and forward in order to fully warn borrowers of the realities of an adjustable rate loan.
"Stated incomes" are another issue of regulation. Previously, borrowers may use a "stated income" on their loan application rather than providing job history and income verification. In most cases, mortgage applicants will overestimate their income with hopes of a better loan qualification. This results in borrowers obtaining a loan they cannot financially support. It is now required that even stated incomes be verified, so that the accuracy is certain. Again, this may make it difficult for some borrowers to get the mortgage they want, but it will prevent more foreclosures overall.
Credit scores have always been a key factor in mortgage application, and now, many lenders are required to review an applicant's credit history for the past 24 months, rather than just one year. They are also required to take the lesser of two credit scores when another person is involved, such as a spouse, or sometimes they are able to simply take an average of the two. This will take into account the entire financial burden and responsibility of a household.
Though these regulations may seem to make the loan process more difficult, they are actually protecting many people from finding themselves in a bankrupt or foreclosure situation. By increasing the guidelines for mortgage application, the average borrower is more likely to be prepared for their qualified mortgage, and their loan is more likely to be a success.
About the Author: Peter Dellane is the President of Ability Mortgage Group, LLC, A leading Maryland Mortgage company offering low costs zero point mortgages. For more information on Maryland mortgage rates please visit www.marylandsmortgage.com.
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