Tag Archives: Federal Reserve

Real Estate

New Federal Reserve Rules to Protect Consumers From Abusive Lending Practices

Getting a mortgage in the hay day of the housing bubble was sometimes a very costly adventure.  Some mortgage brokers would try to steer the borrower into  loans that gave the  broker the most points (a point is one percent of the loan) to them. In other words, they would pick a lender that gave them the most money for originating a loan with them. Some mortgage companies and banks would add un-necessary fees to increase their profit margin when originating a loan.

The Federal Reserve Board has  issued new rules to protect consumers from abusive mortgage lending practices.

The new regulations, which take effect April 1, 2011, will ban lenders from paying mortgage originators more for putting borrowers in more expensive loans. Consumer advocates have long decried the incentive, known as “yield spread premium,” saying it steers homebuyers into loans with higher interest rates.

Under the new rules, lenders will also have to disclose how borrowers’ payments could change over time, including the maximum amount that could be owed under an adjustable rate loan. Homebuyers will also have to be told about any balloon payments due at the end of the loan’s term.

The Federal Reserve has been tightening mortgage lending regulations in the wake of the housing bust. The Wall Street reform act recently passed by Congress includes similar provisions, but also addresses practices not covered by the board’s new regulations. The Fed plans to implement the act’s provisions in the future

By the way, the regulations are not in effect yet, so shop around when you are getting a mortgage. Ask how many points the lender is going to charge you and what other costs are they going to tack on to get your loan. Question each cost item that they are going to charge you to originate your loan. Compare closing costs among several companies to see which one is the cheapest and gives you the best interest rate. Compare what they told you verbally to what they put in writing.

Real Estate

Good Real Estate News: Home Equity is Rising Again

Numerous articles have reported that homeowners are underwater and that strategic defaults are increasing. However, a little known statistic by the Federal Reserve shows that home equity again is on the rise.

KEEP THIS IN MIND

• The Federal Reserve conducts substantial research on mortgage balances and home-value changes in hundreds of local markets nationwide and reports its finding quarterly. According to the Fed’s most recent “flow of funds” survey, homeowners’ net equity increased by nearly $1 trillion compared with the recession’s lowest point between the first and third quarters of 2009. From June 30 to Sept. 30, net equity rose by $418 billion.

• According to a report by Zillow.com, the overall negative equity rate among U.S. homeowners remained flat in the fourth quarter at 21.4 percent. This report, combined with other housing factors and studies, may indicate that the unprecedented reduction in home equity is shifting.

• Some homeowners, especially those in areas with high foreclosure rates, are choosing to strategically default on their mortgages, even though they can afford the mortgage. Many homeowners who choose this approach do so because they do not see an economic rationale in continuing to make their mortgage payments. Homeowners considering this option should be aware of the negative effect it will have on their credit status. Foreclosures can remain on credit reports for up to seven years, likely increasing the interest rates the consumer pays for credit, and making it more difficult to receive approval on a new mortgage loan.

To read the full story, please click here: Washington Post