Another blow to the housing bubble
The Economy, Real Estate July 8th, 2008
Better late than never. It looks like the Fed is finally going to regulate mortgages to prevent another housing bubble from forming in the future. They should’ve done this four years ago but as always, the government is late to the party. Bernanke is saying that the Fed will issue new rules “aimed at protecting future homebuyers from dubious lending practices”.
According to AP via Yahoo:
The rules will crack down on a range of shady lending practices that has burned many of the nation’s riskiest “subprime” borrowers — those with spotty credit or low incomes — who were hardest hit by the housing and credit debacles. The plan would apply to new loans made by thousands of lenders of all types, including banks and brokers.
It would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower’s income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower’s ability to repay a home loan from sources other than the home’s value.
This is what the New York Times is saying:
Mr. Bernanke said that the Fed would issue next week long-awaited rules to restrict new exotic mortgages and high-cost loans for people with weak credit. Such mortgages have been a central cause of the current market problems.
The Federal Housing Administration will also begin an expanded effort next week to help a larger group of troubled homeowners refinance their adjustable mortgages. Under the plan, homeowners would be eligible to refinance even if they have missed up to three monthly mortgage payments over the previous 12 months.
Homeowners who have fallen behind on their payments because of job loss, declining wages and family illness would also be eligible, even if their rates have not increased. Homeowners are now eligible only if they were current on their mortgages before their interest rate was adjusted upward.
July 9th, 2008 at 9:54 am
Coming up with these new rules will make it much harder for people to qualify for a long and therefore, further depressing the housing market.