New Ban on Risky Home Mortgage Loans


mortgageNew rules announced this past week are aimed at preventing the return of high-risk no-document home loans that contributed to the collapse of the housing market. For the first time federal regulators are laying out rules to ensure borrowers can afford to pay the cost of their mortgages. The Consumer Financial Protection Bureau will require lenders to offer loans that don’t trap borrowers. When the rules take effect one year from now upfront fees will be limited and interest-only loans will be curtailed. Lenders would be required to verify and inspect borrowers’ financial records.

Will they make a difference to you? Probably not. For most mortgages the rules would not tighten today’s strict credit standards, but they are designed on the kind of no-holds-barred lending that was seen during the housing bubble before 2008. Financial firms would be banned from saddling homeowners with onerous loan payments that total more than 43 percent of a person’s income. That might make it harder for people with lower incomes to qualify for a mortgage if banks are tempted to ease their requirements.

The boom in re-financed mortgages is expected to continue this year. According to the Mortgage Bankers Association, four out five home loans are now “re-fi’s.” Most 30-year fixed rate mortgages are close to record lows and are well under 4 percent. A cheap rate can make a big difference over time. “At the end of 30 years you can save thousands upon thousands of dollars in total interest,” says Pat Esswein of Kiplinger’s Personal Finance. Refinancing usually makes sense “if you will stay in your home long enough to recoup the closing costs that you have to pay to do the re-fi.” To calculate re-financing costs and long term savings, Esswein says “go to an online mortgage payment calculator and see what you can save by reducing your interest rate.”

Yet another example of the fallout from the 2008 crisis was the massive taxpayer-funded bailout of AIG. The board of the insurance giant has decided not to join in a shareholder lawsuit that accuses the government of unfair terms when it rescued the firm. The suit was first brought by AIG’s former longtime leader Maurice Greenberg. In a memo to employees, the firm’s chief executive said the board’s decision was about “continuing to move this company forward not backward.”

Businesses and individuals who claim BP’s oil spill in the Gulf of Mexico cost them money have been paid more than $1 billion through the company’s class-action settlement with private plaintiffs’ attorneys. Court-supervised claims administrator Patrick Juneau says payments hit the $1 billion mark before the end of last year. Some 95 percent of claimants who were offered payments decided to accept them, says Juneau, who says the acceptance rate is evidence the settlement and claims process are fair. The court-supervised claims process was established in June 2012. It replaced the Gulf Coast Claims Facility led by Kenneth Feinberg. BP estimates it will pay $7.8 billion to resolve more than 100,000 claims through the court-approved settlement.

Source: ABC NEWS

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