What would be the unintended effect of proposed new bill?
It is reported in the media that the federal government is contemplating a new bailout plan by name “Restoring American Financial Stability Act of 2010”. Experts are of the opinion that the intended new rules imposed on mortgage lenders, would only add up the indirect cost of mortgages – already having higher pricing – entered into by disadvantaged borrowers.
The new rule may open up liberal repayment provisions to borrowers, but seems to deviate from the long-standing norms favorable to less-fortunate borrowers. What are the proposed new rules?
New restrictions are likely to be imposed on lenders – first of all the lenders are held responsible to see that mortgage loans are affordable to the buyer. There will be two divisions – “qualified” and “not qualified” mortgage loans ultimately by this. Another restriction is lenders must retain at least 5 percent of the credit risk while issuing new loans.
Mortgage lenders are safe with low-risk category loans that is – those with terms no longer than 30 years; fully amortizing payments which is possible for borrowers with sound financial background credit-score-wise; and qualification criteria based on the highest possible interest rate in the first five years etc. In respect of these qualified mortgages, the lender is not obliged to keep the above credit risk charges.
The above stipulations are hard to qualify, for those borrowers emerging from low-income, minority groups and underserved communities of the society. Lenders if obligated by the proposed law, to see that these unqualified borrowers are served to the best possible extent, invariably there will be price differences, between the qualified and not-qualified sections of borrowers – and the difference in cost will only fall on the heads of these poor cousins of the home loan borrowers.
Talking of qualification, a borrower with 800 credit score and 40 percent equity was easily qualified, irrespective of proof of income, prior to the sliding down of mortgage industry. Lenders were safe in their extending capital at least by the equity, if not the credit score. Now with importance shifting to not-qualified section of borrowers, the lenders will not be interested and the home loan issuance will shift to mega lenders with hefty charges, to do business under the changed conditions.
Surely this is not the intended effect of the proposed reform bill, but that is what going to happen.
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[...] It is reported in the media that the federal government is contemplating a new bailout plan by name “Restoring American Financial Stability Act of 2010”. Experts are of the opinion that the intended new rules imposed on mortgage lenders, would only add up the indirect cost of mortgages – already having higher pricing – entered into by disadvantaged borrowers. Read More…. [...]