Overdue mortgages and foreclosures saw a good deal of limelight as the economy fell to pieces starting in 2007.
As consumers struggled to make sense of the banking industry, a number of changes were put in place that will hopefully prevent many consumers from making the same mistakes and falling prey to the same scams again.
The most predominant change to help consumers out is the Truth in Lending Provision, also known as Regulation Z. For years, lenders were able to take advantage of consumers' ignorance regarding mortgages, but this specific act requires the lenders to be open and honest in their dealings.The Board of Governors of the Federal Reserve System acknowledged the four key provisions of the recently amended regulation that needed to take place which started on July 30, 2009 are:
- Income requirements. Prohibit a lender from making a loan without regard borrowers' ability to repay the loan from income and assets other than the home's value. A lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan. To show that a lender violated this prohibition, a borrower does not need to demonstrate that it is part of a "pattern or practice."
- Income verification. Require creditors to verify the income and assets they rely upon to determine repayment ability.
- Restrictions on prepayment penalties. Ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years. This rule is substantially more restrictive than originally proposed.
- Escrow and Insurance requirements. Require creditors establish escrow accounts for property taxes and homeowner's insurance for all first-lien mortgage loans.
Another revision to mortgages that is set to go in effect nationally on January 1, 2010 requires lenders and mortgage brokers to provide potential borrowers with a standard Good Faith Estimate (GFE).According to HUD, the easy-to-follow form will quickly provide mortgage shoppers with:
- The term of the loan
- Whether the interest rate is fixed or is changeable
- If there are pre-payment penalties
- If there are balloon payments
- Total closing costs
- 10% limit for charges excessive to original estimate
These two programs were developed for the long term health of the real estate market. Consumer should take the time to familiarize themselves with the new acts in order to protect their rights and get the best mortgage possible based on their situation.
