The Federal Reserve is at a tug of war with setting new Mortgage Regulations.  On one side, the consumers are stating with the new rules set to be enforced in December, there are too many loopholes that will cause consumers to continue to default and allowing reckless lending to continue.  On the other side, the lenders are stating that with the new rules it will limit them on who to lend to and will prompt them to further restrict credit.

 The Fed claims the new regulations will prevent sub prime borrowers from getting into loans they can’t afford.  With the way the rules are currently set up today, borrowers can still obtain mortgages by showing limited documentation.  Consumers are worried this will continue to hurt the economy.

Consumer’s Side 

Consumers are stating the Fed needs to enforce rules that require banks to document the borrower’s ability to pay.  Get rid of all the Stated income loans and require the borrower to prove their ability to pay.  If a consumer is looking to purchase a primary home and claim they make $100,000 a year, then make them prove this in tax returns or W-2’s. 

 The Fed needs to close the doors on fraud and misbehavior so this market can stabilize.  If the fed continues to allow borrowers to obtain a mortgage with the current rules in place, the market will continue on the road to destruction. 

Another rule consumers are hoping the fed will change is to eliminate pre-payment penalties.  Advocates cliam pre-payment penalties cause more harm than good. 

 Lenders side

Lenders claim with the new regulations, lenders will lend fewer mortgages and increase the amount of work they would have to do. 

Also lenders are stating the Fed needs to clarify the new rules on how to determine a borrower’s willingness to pay.  Even though with the new rules it still gives the lender options on how to determine a borrower’s ability to pay.

My Side 

 Overall I agree with both the consumers point of view as well as the lender’s point of view.  Lenders are worried the market is going to continue to spiral downword and the only thing the Fed is doing to prevent this is cause them more work and less loans.  But on the other hand the Fed is putting these rules in place to help the economy in the long run and to prevent this from ever happening again.

It’s a tough market right now and the fed is doing everything they can to prevent the market from getting worse.  Nobody has an answer right now and as a consumer, we’re just going to have to sit here and deal with what we’ve created.

 Being in the mortgage market, of course I’m seeing less loans that what I have in the past, but the loans I have been seeing are cleaner loans.  The borrowers we were seeing before were always looking to go “stated” (Stated = no verification of income or assets) but now we’re seeing borrowers come to us KNOWING they need to document their income.  I personally think the new rules are tough because it’s more paper work and a longer process, but in the long run it’s creating more qulified borrowers and allowing us to lend money to borrowers who can pay the loans back.

We just need to keep working through this tough time.

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