Feds get involved, lending standards tighten
The coming tide of foreclosures has captured
the attention of Congress. House and Senate
committees have held hearings, but no major legislation
has resulted so far. Regulators are on notice,
though. Federal regulatory agencies have proposed
strongly suggesting that lenders extend subprime
ARMs only to customers who can afford to make
payments at the maximum possible interest rate.
As a result of rising foreclosures and regulatory
pressure, lenders have been tightening their criteria for extending
subprime mortgages and other types of loans, especially a nonstandard
type of mortgage called alt-A, which typically doesn't require full
documentation of income or assets.
president of Equity
Now, a mortgage lender, says
the criteria for some loans have
become too strict. "Now it's
a little tougher to do deals that
are actually good deals,"
he says. "Most people now
are looking to 2008. In the month
of August, things worsened notably
with American Mortgage going out
of business. The feeling is that
it will take some time."
Tips for avoiding bad mortgages
But how does a borrower distinguish a good deal from a bad one?
"I think one thing that you do, definitely, is you insist on a disclosure," Moskowitz says. "Anyone who doesn't give you a disclosure within three days, the way they're supposed to do under federal regulations -- don't even talk to them."
Ask the broker or loan officer for references to three recent customers who have roughly the same income and credit profile as you. Then call them. "People will talk," Moskowitz says. Ask them how long it took to close and if the original estimate of rate and fees changed before closing, "because maybe they got bamboozled a little bit."