Say you’ve got a payment shock coming up when your ARM resets next month, so you go to your lender to refinance. Your credit score is good, you’ve got enough equity and income to make it happen, but then you are denied. Why? New lending guidelines!
“It seems likely the rules will have sufficient bite to cause some adjustments in the types of loans being offered in the mortgage marketplace,” analysts at UBS Securities LLC said in a Tuesday note. “That could have some serious repercussions for lenders, as well as for homeowners seeking to refinance their affordability loans.” – Reuters
What will be the impact of these guidelines on
a) purchases
b) cash-out refis
c) refis to avoid payment shock/foreclosure?
It will have some effect for depositories, especially depositories who do a lot of business stemming from brokers.
One paradoxical effect it will have is that some conservative depositories will use these guidances, and especially the suggested disclosure formats, as a roadmap to start offering these loans when they hadn’t before. Conforming to the suggested disclosure guidelines offers institutions a way to cut potential legal risks. They won’t do tons of them, but they will start offering them.
According to the primary guidance, state regulators of non-depository lenders had agreed to institute similar regulations for non-depository lenders. But they haven’t yet, and there was nothing holding them back, so I’m not holding my breath.
Isn’t this more of a CYA move by the Federal Reserve. They see the increase in foreclosures coming, and now they can say they have addressed the problem. It will take time to see if this does have teeth, I have a feeling this is pretty meaningless outside a symbolic gesture.
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