After witnessing the subprime mess, American regulators don’t think U.S. mortgage lenders can police themselves–so they’re issuing “guidance.”
For one, they want mortgage lenders to start qualifying borrowers for the highest interest rate they could foreseeably pay over the life of a loan. The idea is ensure borrowers can afford their homes after promotional interest rates expire.
The feds also want lenders to allow penalty-free refinancing within 60-days of any rate reset date. Borrowers could then more easily secure alternative mortgages before promotional rates expire.
So the question is, will tighter lending standards help the U.S. real estate market by preventing price-depressing foreclosures? Or will they hurt the market by limiting buyer’s access to credit?
We’ll know in a few years…
More from Reuters
Last modified: April 25, 2014
I remember reading about this in Business Week a couple of months ago. It blew my mind that financial institutions were allowed to, and for that matter, wanted to base lending amounts on the initial ‘teaser’ rates and not the rates that the loan would eventually have after a couple of years.
I just couldn’t believe it!
Mike
The only reason I could think of is if those lenders wanted to get in the home selling business. :)
Melanie