Home loan standards? Who needs 'em?
The Federal Reserve recently announced it was considering a new rule that would require lenders to assess a customer's ability to repay a mortgage before making a loan.
Common sense, right?
After all, the recent mortgage crisis happened in part because too many people were given home loans they couldn't afford to repay.
The proposed rule, made in carrying out the Dodd-Frank Act, would implement a so-called ability-to-repay requirement on lenders.
Banks and other mortgage originators would meet their obligations by, among other options, verifying your income or assets if you seek a mortgage or by refinancing mortgages with "risky features" into ones with lower monthly payments.
While this might sound like a good idea -- and one that perhaps could have averted the real estate crisis -- questions remain.
Have lenders already addressed the issues raised by the rule? Should this rule go further?
In fact, lenders have made significant underwriting changes. It is now more difficult to get a home loan than it was before the mortgage crisis.
Banks and other mortgage lenders rarely provide loans with no proof of income (and the few that do make you pay significantly higher mortgage rates), exotic loans have been curtailed, and buying a house without a down payment is virtually impossible (unless you qualify for a VA loan).
Indeed, some lenders have balked at the Fed’s proposed rules, saying the mortgage industry has already made changes as a result of the disastrous subprime mess.
Other lenders are not convinced the rule will have much of an impact, saying lending standards are so tight already, you won't notice any change under the rule.
The Federal Reserve is seeking comments until July 22. Then, the new Consumer Financial Protection Bureau will make a final ruling.
What do you think?
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