The House of Representatives has finally passed the Financial Reform Bill that provides the high changes of financial regulation since the Great Depression. It is expected President Obama will sign it into law fairly soon. The Financial Reform Bill will have certain affects on the mortgage market. This bill will bring into affect new lending rules which will protect the consumers. Let's take a look at some of them.
Lenders to retain interest in the loan: The lenders will retain at least 5% interest in the loan that they originate. There would be a risk for the lender if he originates the loan to a person who cannot afford it. Thus, it would encourage the lenders to offer mortgages only to those who can afford to repay the loan, taxes as well as the insurance costs.
Create a new agency to stop predatory lending: Both the House and the Senate have called for creation of a new Consumer Protection Agency that will stop lenders from indulging into predatory lending that pushed the nation into the financial crisis.
Transparency in credit score: If a lender rejects loan application, he will have to let the borrower know about the credit score information used to make the decision. The borrowers will not only be able to see their credit scores, but also the short descriptions of the negative items which resulted in the low score.
Pre-payment penalty limits: The pre-payment penalties played havoc during the mortgage meltdown. When the borrowers tried to refinance their loans, they had to pay heavy penalties and increased payments. If the new bill turns into law, pre-payment penalties won't be allowed in case of some loans. Also, the lenders would be required to offer financing alternatives to the homeowners before charging them penalties.
Improving appraisal standards: Under the new Bill, a consumer protection agency will be set up which would have to supervise the appraisals. Thus, the lenders or real estate agents will not be able to influence the appraisals.
If the Financial Reform Bill turns into law, the consumers will be well protected and it is expected that in the long run it might help in preventing another housing market crisis.