Mortgage Guidelines Moving Forward

Submitted by Rich Toscano on March 29, 2006 - 6:03pm

You may recall that at the end of 2005, the OCC and friends released a proposed set of rather stringent lending guidelines. (See Is This the End of E-Z Credit? for a summary). The publication in question did not put guidelines into place, but rather explained the guidelines being discussed and requested comments from the banking community.

The draft rules didn't seem to scare anyone straight. Some lenders tightened up, but that seemed as much a symptom of credit conditions as anything. Meanwhile, in a desperate bid for more market share, some lenders have gotten even more risky since the document's original publication.

Now, as my man Calculated Risk points out, the comment period has come to an end. His article includes a link to all comments, for those intrepid folks who wish to read them. Most of the comments seem to be a request for an extension of the comment period from back when the original period was slated to end a month ago. Many of these entities have not followed up, which is very surprising. as a matter of fact, I'll be they did follow up but that the comments haven't made it to the FDIC website. I will check back next week.

More to the point of this post is the fact that the comment period has ended. The threat of regulations didn't seem to do anything... we are now moving to the next stage of getting actual regulations, instead of proposals thereof. I do not know how long it will take, or for that matter whether the guidelines will end up as stringent as what was found in the draft document. But the process is moving forward and it is something we would do well to watch in the coming months.

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Submitted by Bugs on March 29, 2006 - 8:18pm.

I disagree that nothing is happening. I'm seeing banks tightening up their underwriting and appraisal criteria quite a bit. Some of these lenders who have been running real loose have been straightening up a just in the last 30 days. It's refreshing to see some concern about compliance with rules that have been ignored for a long time. The percentage of ARMs right now is apparently dropping like a rock, and most of the banks are just now taking more steps to comply with the letters issued by the feds in 10/2003 and 03/2005.

All of this comes not a moment too soon, either. It's really too bad that safety and soundness don't become
priorities with the feds until it's too late. We're still paying off the losses from the last S&L bailout.

Submitted by MANmom on March 29, 2006 - 11:01pm.

Rich and Bugs,

While browsing through new home communities this week, I noticed that on top of the already huge price paid for new homes, there is an increasingly large extra payment for various expenses that adds to one's monthly mortgage, those being Mello-roos, HOA, Schools, etc. Do mortgage brokers take these add-on fees into account when they fund a loan? Some of these add up to more than $500 per month - this has to affect the borrower's bottom line. I saw one for over $600, and they are paid for 20 to 30 years. What effect, Oh Professor, does this have on the overall housing numbers, the price comparisons, etc. Could you please shed some light on one of the landed poor?

Submitted by LookoutBelow on March 30, 2006 - 8:46am.

Although its getting to be all the rage in banking now, by tightening the credit requirements...its unfortunately too late. Those and most banks will be bankrupt when the economy stumbles. In the last great depression (nothing great about it!) at least 1,800 banks went bankrupt in less than 18 months.

Expect the same this time around.

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