Foreclosure Rescue - Fed’s New Rules

July 29th, 2008

At last, Fed’s new rules have been approved for Roxanna Evans. She has a home in Ohio, which she bought some years ago, but didn’t stay there. Now she is facing foreclosure on that property. The mortgage lender along with the real estate agent and appraiser together are inflating the cost of the home. It is expected that approval of these rules will be profitable for so many real estate owners and prevent them from losing their house.

The sky high rate of foreclosure is a result of shady lending practices. The era of the booming real estate market ended up giving birth to thousands of “subprime” borrowers, which actually belong to lower income groups. They have just taken loans without any concern of how to repay them. The lenders have utilized this opportunity and imposed a higher rate of interest on home loans. This deceptive act is responsible behind extension of high-cost loans thus causing foreclosures.

Fed’s new rules will impose some restrictions for lenders, like:

approving loans without borrower’s income proof
penalizing borrowers who have paid off loans earlier
approving loans without confirmation of borrower’s ability to repay
misleading advertising

However, critics are doubtful about the relevance of these rules. They remember the former experience of Fed’s failure on the same issue, which resulted in increasing numbers of foreclosure.

These rules won’t achieve an immediate result, because:

There are very few numbers of real estate buyers
Many of those shady practices along with lenders are wiped out from the real estate market during the mortgage meltdown
Disappearance of “real subprime” market
Lenders are less interested in expensive foreclosures, and are trying to solve the existing cases
Lenders have to be more strict about approving new loans

The new rules will take defect on 1st October, 2009. The rules are stick to some basic points, like:

Lenders should advertise properly mentioning detail about rates, monthly installments etc.
They should clear the exact time period, and mention fixed rate of interest that is applicable
Mortgage companies should credit the payment to the borrower’s account on the same day it is received, to prevent the borrowers in paying late fees
Agents are restricted in inflating the value of a home
Brokers will get their yield-spread-premiums as before

No doubt, this is a “thoughtful effort to tackle difficult concerns”, according to the Mortgage Bankers Association. However, the lenders think that getting new loans will become difficult after the rules are in effect.