Financial reform and your mortgage

The legislation imposes restrictions on loans that don't meet the definition of "qualified mortgages."

Prepayment penalties are banned on nonqualified mortgages. This ban will make it easier for homeowners to refinance out of tricky mortgages. It probably also will make such mortgages less profitable to lenders.

Essentially, if a loan offers the possibility of negative amortization, the lender must tell the borrower that getting the loan is a bad idea. A first-time borrower won't be able to get an option ARM without first getting housing counseling from a HUD-certified agency.

During the housing boom, lenders eagerly underwrote subprime, interest-only, option ARM and stated-income mortgages. After the housing boom, those types of loans disappeared or became scarce. The legislation is designed to ensure they will remain no more than niche products.