financial reform bill

How does the financial reform bill affect you and your mortgage?

If you are planning on purchasing a home soon, turn to GSF Mortgage in Aurora for the latest information. We’ll keep you up to date on the financial reform bill.

This bill is designed to provide protection for borrowers, some of the provisions are opposed by the Mortgage Bankers Association, which says the regulations will likely constrain credit and make home purchases pricier.

Here’s a look at what’s on the table.

Compensation for loan originators – One of the key provisions in the legislation deals with how mortgage brokers and loan originators are paid. Both the Senate and House versions prohibit lenders from paying brokers more for steering borrowers to more expensive loans. Independent loan originators have often been given financial incentives to put borrowers in loans with higher interest rates than they qualify for.

Prepayment penalties – Both bills also restrict mortgage prepayment penalties, which are penalties charged to a borrower who repays the loan earlier than originally agreed upon. (In the past, when homeowners tried to refinance into a cheaper loan, they faced heavy penalties and increased payments.)

Ability to repay – Both bills would also block lenders from making loans without verifying if the borrowers can repay them. In an attempt to banish the practice of “no doc” and “liar loans,” the bill will require lenders to document income and have a reasonable belief that borrowers can repay their loans.

Appraisals – The House bill gives the consumer protection agency authority over home appraisals and the power to ensure the independence of appraisers from lenders and realtors. Currently, the Home Valuation Code of Conduct (HVCC), which was mandated last year by Fannie Mae and Freddie Mac, has this role. HVCC requires lenders to keep a distance between the lenders and appraisers. Most lenders have chosen to outsource appraiser selection to third-party appraisal management companies (AMCs). But this practice has resulted in some cases of AMCs steering work to appraisers who cost the least, not those who are most qualified.

HVCC is scheduled to sunset in November. The House bill calls for a new committee to be set up to review and set in place new standards for appraisal independence.

Credit score – Last month the Senate approved an amendment to the bill that would give consumers free access to their credit scores when they’re denied a loan, rejected for a job, or charged a higher interest rate based on their credit history.

Today, the credit score is the chief gauge used by lenders like GSF Mortgage in deciding whether to approve a loan. Right now, consumers can only access their credit report for free once a year (through AnnualCreditReport.com); they must pay to see a credit score from one of the three credit reporting bureaus. So if your mortgage application gets turned down, the lender would have to provide the credit score information they used to make the decision.

If you would like more information, about these proposed changes or other mortgage information, give me a call today!