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Congress Is Changing the Rules – Mortgages Safer But Require More Verification

The changes to current lending regulatory rules that Congress is considering are planned to do away with predatory lending practices, and make mortgages safer for home buyers.  The goal is to regulate the way lenders qualify their customers, and to force them to verify that the borrower is going to be able to make their mortgage payments.  These new rules will also require a great deal more disclosure of loan terms.  Lenders must make very clear to the borrower the terms of an adjustable rate mortgage, and explain to the consumer that payments will vary with interest rate changes.  One practice that some say fueled the subprime lending boom was the steering of borrowers into costlier loans more profitable for the lender, when the consumer could have qualified for a less expensive loan.  This practice will be banned in the new rules.  Prepayment penalties for subprime, adjustable rate, and other more risky loans would also be banned.  Those penalties for traditional loans would be limited to three years as well.  While the new rules are not supposed to specify minimum down payments or credit scores, generally borrowers will need to be credit-worthy, and have savings and a down payment.  There will also be no more “no-doc” or “stated income” loans.  Those are the loans whereby the borrower did not need to prove their income or ability to re-pay the loan.  Borrowers will now be required to fully document their income and ability to repay the loan.  Self-employed borrowers will still be able to get loans, but it will just require more stringent income and expense documentation.

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