U.S. Regulators Tighten Lending Standards

Fed 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…

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