Yesterday Oct. 1, 2009, new lending regulations affecting lenders and brokers alike where put into play by the Federal Reserve.   These new rules requiring greater diligence on the part of real estate lenders and brokers who make high cost loans to borrowers with less than perfect credit. The interest rates on these types of loans generally are at least 1.5 % points higher than the average “prime mortgage rate”.

These lenders are now prohibited from making high cost loans without verifying that a borrower could repay the loan in the conventional way, and not through a foreclosure sale. 

During the height of the market, subprime lenders often would offer loans without requiring borrowers to provide proof that they could make the monthly payments. In some cases, borrowers used stated income loans, which allowed some borrowers to fabricate annual income figures and buy homes without down payments.

Although many believe the Federal Reserve’s new rules represent one of the more substantial efforts on the part of the federal government to combat such lending practices, some consumer advocates are concerned.  According to a policy associate at the Center for Responsible Lending, the new regulations do not cover option ARMs, which enable borrowers to choose from several monthly payment options during the loan’s early years.

To read more about the New Regulations

For more information on Lending and Real Estate Loans

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