Sun Editorial:

Mortgage changes needed

Federal Reserve should not bow to lenders who say new rules are too strict

Friday, May 2, 2008 | 2:08 a.m.

Bankers, mortgage brokers and other members of the housing industry are resisting the Federal Reserve’s effort to craft stricter lending controls.

Although Congress is considering its own legislation on mortgage practices, the Federal Reserve has the authority to set mortgage standards on its own, and it proposed new rules this year.

These new standards would require, among other things, that mortgage companies provide documentation showing that customers can afford the loans they are given. The proposal also calls for requiring lenders to disclose all fees included in interest payments and would prohibit misleading advertising.

The public comment period for the proposed rules closed April 8. Just before, the Fed was barraged with more than 5,000 comments from lenders and bankers who say the rules could affect loans that have not been troublesome and could prevent worthy customers from obtaining loans, The New York Times reports.

Those who oppose the Fed’s proposed measures say the rules encompass too many types of loans and the additional documentation requirements would create more paperwork, making loans more expensive to obtain.

Opponents also say the need for added documentation could prevent lenders from awarding home mortgages to people who have decent credit scores but are making smaller down payments or have income that is not easily documented — such as tips.

The Fed is considering making some changes in the scope of the rules.

Still, the Times reports, consumer groups say the Fed has not provided adequate oversight of lenders in the past and its proposal isn’t strict enough to start with.

Better documentation is needed to protect both lenders and borrowers. But the Fed’s new rules should recognize, and make allowances for, those whose income and assets are not easily documented in the traditional manner.

Although we can appreciate that stricter rules will be harder on both those lending money and those borrowing it, the recent mortgage crisis illustrates that far too many people were obtaining home loans they could not afford.

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By HelenWeils

May 2, 2008

9:27 a.m.

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The Bankers are right. Self employed people and those on tips, anyone who isn't a W-2 job type taxpayer will be left in the lurch. HELLO LEGISLATURE!!!! THEY STUPIDLY PASSED A LAW FOR NEVADA THAT WILL MAKE IT VERY HARD FOR 1/2 THE POPULATION TO GET FINANCING!!
By aaron72

May 9, 2008

6:59 a.m.

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The new rules aren't too strict - and we all know it. The lenders knows it - they are just concerned with losing business.

However, even with the old rules, I feel that the aspect of personal responsibility and judgement has been completely overlooked. You don't have to have a degree to do the basic calculations and estimate how your monthly payments may be affected by an increase of the interest rate. There are mortgage calculators online available for that (it only took a few seconds to find http://www.mortgageloan.com/calculator/ through Google).

Please, stricter rules AND enforcement of personal responsiblity this time around...