Jul 30, 2009

Fed Changes to protect consumers

In order to protect consumers and help them make intelligent decisions while taking out mortgages, the Fed is instroducing some changes that seek to bolster its image as the watch dog for the consumer.

Under the proposed rules, mortgage applicants would get:
* A page Q&A document explaining risky features of a loan
* Streamlined early cost disclosures
* A revised annual interest rate that includes most fees and costs
* A graph showing borrowers how their rate compares with rates of borrowers with excellent credit
* In addition, side payments for steering borrowers to higher-cost or riskier loans would be banned.

Home-equity loan applicants would get:

* A one-page document explaining the risks of the loan
* Cost disclosures specific to their loan
(Courtesy: WSJ)

In addition, lenders would have to notify borrowers 45 days before changing terms of a loan.

The other proposals include complete disclosure of the YSP - the amount the broker makes on the loan. While it is very crucial that this disclosure be made, there is some talk about eliminating this or curtailing it in some form. While it is known fact that the higher the interest rate the borrower gets, the higher the payout for the broker, would it not be better to have an informed borrower than to eliminate this channel altogether (or squeeze it out of the market)?

If a consumer uses the broker/wholesale channel effectively, he/she can get rates that beat the retail channel. It is a known fact that the cost to originate is higher in the retail channel due to the overheads, so it remains to be seen what track the lenders take in this matter.

All comments for and against are welcome. The entire article is available on the WSJ


Sam said...

This is just more paperwork for the lenders and the borrowers. We have enough disclosures that the clients already sign this is just another way for the customer to sign duplicate documents. It is going to create more Chaos.

http://marshonmortgages.wordpress.com/ said...

The regulators just keep adding layers to the existing rules and pretend that they are going to solve the problem. The answer lies in making the mortgage process transparent and in educating the borrower. At marshonmortgages.com we have been beating the drum of consumer education and will continue to do so. http://marshonmortgages.wordpress.com/