Fed to Enforce New Lending Guidelines
Due to the recent credit crunch and mortgage foreclosure crisis, the Federal Reserve is proposing rules for all lenders, including brokers and banks. Proposals offered for regulations should be instated by next year.
One of the regulations proposed by the Federal Reserve is to make certain that lenders know, in advance of completing a loan, that the borrowers have enough money set aside for taxes and insurance. The Federal Reserve also plans to restrict loans in which there is no proof of a borrower’s income.
One other proposed regulation is to ensure lenders have examined a borrower’s ability to repay on a loan. Clarity will be enforced by improving financial disclosure so that the borrowers understand fully the terms and conditions of their mortgage and also may have used helpful items like a mortgage calculator that calculates a darn near close monthly payment before they jump into the contract.
Another area considered for enforcement is prevention of lenders penalizing the borrower when they pay their loan off early. Abuses in mortgage advertising will be another area the Federal Reserve will address.
The Federal Reserve will need to balance their proposed regulations so they won’t suppress legitimate and responsible lending and so they still allow refinancing opportunities for those subprime borrowers.
Home values have declined and homeowners are often left with a mortgage balance that exceeds the amount they can sell their home for. Therefore, the homeowners in financial trouble often don’t have the option of selling their home to alleviate their financial woes.
With the foreclosure crisis and the current credit crunch, we are at increased risk of recession, so the time is right for the Federal Reserve to take action.
