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Mortgage Rules and Regulations: More is Needed
Friday, July 18, 2008
The Federal Reserve is reviewing the rules and regulations for the mortgage industry. The proposed regulations come after thousands of people have requested a review of the requirements lenders follow when establishing credit for home purchases.
With the revised proposal and a look at revisions in the lending requirements, the Federal Reserve are trying to answer critics who have said that changes needed to be made years ago. Many lending experts have stated that if the Federal Reserve had stepped in when the instable lending situation was being created years ago, the unscrupulous lenders could have been stopped, stifling the real estate boom, but also preventing the currently poor lending situation.
Many experts have stated that if a range of rules had been put in place years ago, many of the things that are currently happening in the lending and real estate sector would not have occurred. In fact, a former Federal Reserve governor, the late Edward Gramlich pushed for a stronger regulation in the mortgage industry, to no avail.
However, despite the current proposed regulations that would be enforced with future mortgage lending, consumer groups say that more needs to be done. Some of these regulations include verifying the homebuyers income and establishing an escrow account for taxes and insurance. However, some consumer groups argue that more needs to be done to prevent foreclosure.
Some consumer groups say that the Federal Reserve should prevent lenders from establishing credit without looking at the borrower’s ability to pay. By looking at the ability to repay the debt on the credit extended, the lender can prevent a pattern of extending credit to homebuyers who cannot afford it. The rules and regulations would prevent the potential for misbehaving lenders who concentrate more on their bottom lines and commissions than the future financial situation of these loans. With housing experts claiming that our economy is experiencing one of the worst housing collapses in the last 50 years, the rules and regulations would prevent the situation from occurring again.
Prepayment penalties would be abolished with the current mortgage lending regulations. The rule would prevent lenders from increasing payments towards the mortgage at least 60 days before the monthly payments increased. In addition, hidden additional fees cause confusion for the consumer and are advocated to be removed as well.
However, there are arguments against these proposed regulations. At minimum, experts argue that there would be fewer homeownership as less and less mortgages could be approved. As many people have the majority of their equity in their homeownership, the reduced number of properties able to be purchased would affect current homeowners looking to sell their home as well as the portfolio for thousands of individuals.
The biggest mortgage regulation would fall towards subprime mortgages. There should be more clear guidelines on lenders who will evaluate how borrowers will be able to pay back their financial debt. The combination of these regulations will help to restore the housing market and economy overall, preventing future foreclosures and instability.