Mortgage Rate News

Yesterday the House passed HR 3915, one of the more controversial bills of the year. This bill is sometimes referred to as the predatory lending bill, and the intent is to tighten standards and protect consumers. And while some aspects of the bill do provide increased protections, consumer advocate groups say that there are some serious loopholes.

What the predatory lending bill does

The main points of the predatory lending bill include:

• Requirements that mortgage lenders adhere to national licensing standards
• Provisions for liability of those that sell loans to investors
• Limits to prepayment penalties
• Limits to incentives for loan originators
• Federal standards and remedies that pre-empt state laws and remedies regarding predatory lending

Why mortgage lenders dislike the predatory lending bill

Mortgage lenders are obviously upset about the limits to the originators and the extra requirements put on them. Inman News reports on the beef mortgage lenders have with limiting prepayment penalties:

Some lenders say prepayment penalties give them certainty that they will receive loan payments for a predetermined period of time. In exchange for that certainty, they are able to offer borrowers lower interest rates. Eliminating prepayment penalties will make it harder for borrowers to refinance existing loans that carry such penalties, critics of the bill said.

Why consumer groups dislike HR 3915

The mortgage industry isn’t the only disgruntled group. Consumer groups are also concerned about some of the provisions of the predatory lending bill. Mainly, they worry about the fact the federal standards put forth in the bill are weaker than the state standards they pre-empt. ConsumerAffairs.com reports on some of the concerns:

“We cannot support a bill that eliminates strong state-law remedies for the victims of predatory mortgage abuses,” said Ed Mierzwinski, consumer program director of U.S. PIRG. “Consumers need these protections now more than and ever, and intentionally or not, this federal law creates rights without remedies.”

What happens next for the predatory lending bill

A version of the bill is being worked on in the Senate. It could differ in some key points from the House bill, in which case the bills would have to be reconciled to each other to pass both chambers of Congress. After that, it goes to the President.

Consumer groups hope that their concerns will be addressed in the Senate version, retaining the requirements for mortgage lenders, but strengthening actual consumer protections.

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Many people who are looking to buy a home are under the mistaken impression that once they receive their mortgage approval, they are free and clear as far as financing goes. Unfortunately, this is not the case. Even with approval, your mortgage financing can still fall through before closing.

One of the main culprits? Additional debt built up after your mortgage approval.

Mortgage approval

You know that when you go through mortgage approval, your credit report and score are checked. These items are used by mortgage lenders to determine whether you will get the mortgage financing, as well as the terms that will be available to you.

But mortgage approval isn’t the final say in financing. Some mortgage lenders check your credit report again, a couple of weeks before the closing date. This means that if you run up more credit card debt, or if you get another consumer loan, like an auto loan, it will likely show up. And if it does, it could scuttle your mortgage financing.

Mortgage lenders want to make sure that your financial picture isn’t changing as the financing goes through. They want to make sure that you aren’t getting into a situation that will preclude you from making mortgage payments. If your credit report shows an increase in activity after getting mortgage approval, it raises a red flag. You want to keep your finances as close to the same as when you were approved as possible.

If you have gone through mortgage approval already, remember that it doesn’t mean your financing is a sure thing. Avoid adding more debt to you finances after an mortgage approval. Don’t even apply for more credit until after you have closed on your home.

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The reverse mortgage is a popular product. Even as mortgage trends move lower, the reverse mortgage is gaining in popularity. Part of the reason is that the reverse mortgage is a popular retirement planning tool.

But because it is associated with retirement planning, the reverse mortgage has had age requirements. Nearly all reverse mortgages insist that one be at least 62 in order to qualify. But that’s all changing.

Lender Lead Solutions is offering a reverse mortgage, called Simple60, that lowers the age requirement to — you guessed it — 60 years of age. This means that if you didn’t qualify for a reverse mortgage before, you might now. Inman News reports on this latest reverse mortgage product:

The Simple60 is geared to consumers who want to pull out $50,000-$75,000, typically for a specific purpose and a shorter period of time. While loan amounts vary depending on age and home value, a 60-year-old borrower with a home valued at $250,000 owned free and clear could qualify for $62,500 under the Simple60 program. Closing costs would be approximately $4,513, about one-third of the HECM closing costs. The interest rate on the Simple60 program is the 30-day LIBOR rate, plus 4 percentage points. Earlier this week that combined rate was 8.7 percent, similar to some home equity loans.

When carefully planned, a reverse mortgage can be a great source of supplementary income during retirement, assuming leaving the house to your heirs is something you aren’t particularly fussed about.

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