Federal Reserve Approves Regulations
According to RECON:
WASHINGTON- (Reuters, Realtor.org) The Federal Reserve yesterday approved regulations requiring mortgage lenders to tell borrowers how much interest rates differ between prime mortgages and the higher-priced ones offered to less-affluent borrowers.
New Regulation C rules will require disclosures to prospective borrowers if the difference between prime and subprime rates is equal to or greater than 1.5 percentage points on a first-lien loan or greater than 3.5 percentage points on a second mortgage.
So What?
Does this change anything? Is this a step in the right or the wrong direction? Should this have been done earlier or not done at all? How do you see this changing lending or real estate for that matter?
Lisa Sanderson
October 22, 2008 at 5:24 pm
If that’s the sum total of the new Regs, I don’t see it as being much help. Most of the ‘good’ lenders explain this to borrowers already anyway.
Even though I don’t have a clue how it could be done, I’d like to see them find a way to prevent lenders from throwing in zingers at the 11th hour when the chances of the buyer walking are negligible. This has been the most egregious thing I’ve seen over the last several years-promising the world and then saying ‘oh sorry, you’ll have to suck it up’ (rate changes, extra points, whatev) when they’ve already moved out of their house, made major financial commitments or whatever.
Paula Henry
October 22, 2008 at 6:29 pm
Lani – I don’t see it making much of a difference. Many who bought using subprime loans knew what they were getting into – they just believed the ride would last long enough for them to cash out and make big bucks.
Like Lisa, I would rather see a lender who keeps their word, doesn’t change rates and can get a loan closed on the day it is supposed to close.
Steve Simon
October 23, 2008 at 5:41 am
We have had better luck than a lot of folks with area lenders, especially considering we are in The Tampa Bay area.
The last five or six loans were quoted pretty much where we thought they should be and then we float until you get a feel of what is going to happen; locking in when it moves in the right direction.
However these were for borrowers with no negatives in their history (some with a short history, but no black marks).
Given the internet’s ability to transfer info. quickly I don’t see many savvy buyers not knowing that there is something “Rotten in Denmark” without this new reg. If you’re going to tell me there are buyers that are not smart enough to call around for rates and check the net for deals before they sign, then I’ll tell you thatdisclosure to them will be meaningless as well (they may be good people, but they have no idea of what they are doing).
Eleventh hour changes happen to the uninformed by those with lack of integrity. That will not stop because of this reg.; just another form to be added to the pile…
Just my thoughts:)
Todd
October 23, 2008 at 6:44 am
Would love to hear from Jeff Corbett on this particular subject.
How does one evoke an Agent Genius staff writer and cause them to make a comment, anyway?
JeffX
October 23, 2008 at 3:06 pm
Hey Todd…
Many states have adopted this type of disclosure for a few years now, so while its nice to see the Fed adopt similar rules, I’m afraid the new Reg C disclosure requirements are a little late to the game (surprise).
This disclosure would have been more effective when there was still a thriving Sub-Prime and Alt-A market. Back in the day it was typically far easier to get approval for and originate a Sub-Prime or Alt-A loan compared their Conforming (Fannie and Freddie backed) cousins. These ‘less than Prime loans’ were also typically more profitable for the mortgage professional as they paid better in back-end fees.
‘Easy’ and ‘pays better’ would often trump what would have been a better loan for the consumer…so you can see the clear conflict of interest and thus the practical implementation of such regulation.
Today however, sub-prime and alt-a loans are endangered species underwritten with far more scrutiny and typically have caps on how much in back-end fees a mortgage professional can make, so the ‘Easy’ and ‘Pays Better’ features have all but evaporated.
There are always exceptions but IMHO Reg C is a few years late and billions short. Markets tend to correct themselves before legislation does…alas, it makes nice press for a maligned Federal Reserve 🙂
Matt Stigliano
October 23, 2008 at 5:24 pm
Let me speak from the consumer side of life. Ok, so it would be nice to know how much I’m getting charged for not being the best of customers, so I see the benefit to the consumer. But here’s where I get mixed feelings. Consumers, don’t always want to pay attention to the details. Although a lender may go over this with them, it may go in one ear and out the other, much like the fact that “your ARM will adjust in x years” did for some. While I am not here to bash the consumer, I am here to make it clear, that some people who want a house, will sign what it takes to get them there, even if it is unresponsible. As much as I know that there are lenders, agents, title companies, etc. out there who weren’t looking out for their clients and allowed them to sign off on bad purchases without the slightest mention of “let’s take a look at this”, I have to say that there were also consumers who would sign anything to get a house (it was the “in” thing to do).
I’m not bashing anyone, so please don’t misunderstand what I’m saying…its just that I know how it is.
My first house was a terrible loan (compared to what was available at the time to the “average consumer”) because I had tons of cash and bad credit (and it was your typically overpriced Los Angeles home). My loan now is at a high interest rate, because I went with a no-doc loan, thanks to 14 years of self-employment and the ups and downs of the music industry. The difference is that I knew I could afford it, even though its too expensive compared to what I should be paying for my loan. I weighed the pros and cons of a not so great loan and the pros were better than the cons. I don’t think telling me what “the guy next door” could get this loan for would help me make my decision really.
My point is that at the end of the day, people want the house and will do what they can to get it. Not all people will do ANYTHING to get it, but many will do A LOT to get it…so disclosing this becomes nothing more than an “I told you so” for when things go wrong.
That’s my two cents.
Nina Sutherland
October 13, 2009 at 5:19 am
The Regulation C also states that lenders do not have to inform whether an loan or application involved a request for pre-approval or were associated with a manufactured property.