New Rule adopted by the Federal Reserve

Penalize  borrowers with weak credit    

This new rule increase the interest rate for High risk borrowers and Bar lenders from making a high cost mortgage without verifying that a borrower could repay the loan in the conventional way and not simply through foreclosure sale.

Since the Federal Reserve is the largest buyer of  U.S. Mortgage Back Securities “MBS“.  They want to protect their investment in the American housing market.  More rules to come.

Four Key  Rules to Protection for Home buyers

The final rule adds four key protections for a newly defined category of “higher-priced mortgage loans” secured by a consumer’s principal dwelling.  For loans in this category, these protections will:

• Prohibit a lender from making a loan without regard to borrowers’ ability to repay the loan from income and assets other than the home’s value.  A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a “pattern or practice.”

• Require creditors to verify the income and assets they rely upon to determine repayment ability.

• Ban any prepayment penalty if the payment can change in the initial four years.
• For other higher-priced loans, a prepayment penalty period cannot last for more than two years. This rule is substantially more restrictive than originally proposed.
• Require creditors to establish escrow accounts for property taxes and homeowner’s insurance for all first-lien mortgage loans.

This rule does not cover the more profitable Option ARM loan or the Adjustable Rate mortgages.

Original article

Tagged as: Durrell Thomas, Federal Reserve, financial market, Foreclosure, Home Buyer, homeowners, lending, Making home affordable, MBS, mortgage, Mortgage Back Securities, real estate, Short Sale