Just recently, new mortgage regulations were originated by the Federal Reserve with the goal of increased disclosure requirements for mortgages to protect consumers from non-refundable fees and higher interest rates. And these new mortgage regulations may help in this regard in certain instances of potential misrepresentations. However, it will also certainly lead to delays in closings in many purchase and refinance transactions where that is not an issue.

These new rules came into place at the end of July and may lead to longer closing times in the coming months. Specifically they require lenders to:

-Provide a good faith estimate (GFE) of a mortgage’s full cost within three business days of receiving an application.

-Not charge any fees until consumers receive the GFE. The only fee lenders can ask for upfront is a “reasonable fee” for obtaining the consumer’s credit history.

-Wait seven business days after providing the initial loan costs before closing the loan.

-Offer a new estimate of the loan costs three business days before the closing date if the original annual percentage rate (APR) increases by more than one-eighth of a percentage point.

These new regulations are in effect now and as mentioned you may begin to see these lengthening the time frame to complete purchase and refinance transactions in the coming months. How much impact they have on increased transparency is yet to be seen. What we do know for now, is that one additional piece of regulation has been added to the mortgage lending process with the goal of protecting consumers, but the only guarantee at the moment is a lengthier loan process.

Bush to unveil aid for at-risk borrowers
Noelle Knox
USA Today
Aug. 31, 2007 12:00 AM

Some homeowners with risky subprime adjustable-rate mortgages will be able to refinance before they lose their homes to foreclosure, with the help of steps President Bush will announce today, senior administration officials said Thursday night.

An estimated 80,000 homeowners with bruised credit and subprime ARMs they can no longer afford will be able to refinance their loans, which the Federal Housing Administration would insure.

The move will mark a historic expansion of the role of the FHA, a Depression-era agency that has traditionally served low- and moderate-income families and first-time buyers but not delinquent borrowers. Nearly 16 percent of subprime borrowers are behind on their ARMs, and an estimated 2 million subprime ARMs totaling about $600 billion will reset to higher rates through the end of next year.

To qualify for the new benefit, homeowners will have to prove they paid their loans on time before they reset to a higher rate. They also must have at least 3 percent equity in their homes.

The program, which doesn’t need congressional approval, should take effect early next year.

Arizona’ subprime-loan and foreclosure woes are mounting. The state ranks behind only Nevada for the most subprime loans in the country. Notices of trustee sales, which are precursors to foreclosures, climbed to 2,478 in metro Phoenix last month. That’s a five-year high.

“Homeowners are looking for help. It sounds like this plan is a start,” said Jay Butler, director of Realty Studies at Arizona State University’s Morrison School. “Many people who got subprime loans should have gotten FHA mortgages in the first place.”

Investors now make up as much as one-third of metro Phoenix’s home foreclosures. But there are many homeowners looking for help, and there is less to be found in the tighter lending climate.

Jay Luber, vice president of First Horizon Home Loans of Phoenix, said if government can loosen up any money for mortgages through the FHA or other programs, it will help people facing foreclosure who can’t refinance now.

Under current rules, the maximum loan the FHA can guarantee is $202,000 in most states and up to $362,000 in high-cost states such as California and New York.

The officials said Bush will also call on Congress to pass his proposal to reform the FHA, in part by raising those loan limits to $262,000 in most states and $417,000 in pricier areas. They spoke on the condition of anonymity because they weren’t authorized to speak on the record.

Bush also wants the FHA to be able to help other risky borrowers, beyond the 80,000, by broadening its lending criteria. To compensate for the added risk that the borrowers might default, the FHA would charge them higher premiums on the loans. Also, Bush wants to eliminate the 3 percent down-payment requirement, though borrowers would have to pay at least some of the closing costs to secure the loan.

The senior officials avoided using the word “bailout,” but the plan is sure to incite critics.

“If you’re going to help someone to refinance, you’re going to bail out the person who financed him in the first place,” Peter Wallison of the American Enterprise Institute said Thursday night. “This will only cause the problem to arise again.”

Wallison said the lenders who provided the financing in many of these cases likely knew that the borrowers couldn’t meet the financial obligations of the loan.

“If we’re going to allow (lenders) to be refinanced out, what we’re doing is saving them from their own greed. … It might be good politics, but it’s very bad policy.”

In another bold step, Bush will propose a temporary change in tax law. It would let homeowners avoid taxes on forgiven debt if a lender agreed to alter the loan terms.