House of Cards: The future of lending


Lending regulation changes

- On May 20, Congress passed a bill into law that aims to prevent mortgage foreclosures by guaranteeing or modifying certain loans and providing HUD funding for certain people; changes to rules on foreclosure mitigation and credit availability; and creating a mortgage fraud task force.

- In June, President Barack Obama proposed a new regulatory structure that would give more power to the Federal Reserve, the nation's central bank, and create a new agency called the Consumer Financial Protection agency. Both moves would create more oversight of lending practices, with powers extending into different kinds of credit including mortgage loans.

- On July 23, the Federal Reserve Board proposed changes to the Truth in Lending Act, this time focusing on closed-end mortgages, according to a Federal Reserve news release. The proposed rules would require increased disclosure of the annual percentage rate, including information about fees and rates compared with other borrowers; and "require lenders to show consumers how much their monthly payments might increase, for adjustable-rate mortgages," according to the release.

- Regulations enacted on Aug. 1 of this year as part of the Housing and Economic Recovery Act require a three-day review of loan documents before the loan process can get started, and allows for another three-day waiting period at the end of the loan process if the annual percentage rate of the mortgage increases by more than 0.125 percent.

— Kathryn Pedersen, a vice president and mortgage loan officer at Yampa Valley Bank, didn't want to paint too dark a picture of the housing loans market during a mid-July interview. She did, however, acknowledge that loan seekers are likely to see more and more regulations moving forward through the next few years.

"You always think of a pendulum. There was no regulation or very little : and now the pendulum has gone to the absolute other side where it's more and more hard to do things," Pedersen said.

It's that more difficult side where Pedersen sees things resting for the foreseeable future. As of mid-July, she felt the pendulum had a little farther to go in that same direction.

"One of the trends is that we're going to need tax returns, we're going to need asset statements, we're going to need everything about you," Pedersen said. The bank might then check a lender's tax returns against the information sent to the Internal Revenue Service, she said. For the bank, it's a longer process, but not an impossible one, Pedersen said. The new lending climate might seem muggier to a potential lender.

"We're used to that, but I think depending on the client, it's harder for them because they're not used to giving everything but their blood for the loan," Pedersen said.

As mortgage brokers change the way they do business every week, as Pedersen said, lenders have trouble shifting so quickly. But as the summer rolled on, so did Yampa Valley Bank's mortgage loan traffic, with some of the best and easiest loans being those available to first-time homebuyers, Pedersen said. For the most part, the bank is putting through 30-year, fixed-interest products, she said.

"I still see the 30-year being around for a while; that is the product that has been here, and I think it will stay no matter what. But I also think that we'll continue to see some more legislation and regulation, and that may change the product structure down the road, and that may limit what people can and can't do," Pedersen said.

Locals are more likely to get a 20-percent-down loan if they start taking steps now to get rid of debt and "have some degree of savings," said Elizabeth "E.A." Black, a Steamboat Springs financial consultant.

Pedersen said she expects regulations to stay tight for a while, but she thinks there might be some things that will free up within a year or so. Before that can happen, lenders will need to figure out their cash positions and markets will need to figure out their new rules.

"It's hard to say what's going to happen, because I never would have predicted where we are now," she said.


Scott Wedel 7 years, 7 months ago

20% down AND no balance on credit cards? Wow. How many eligible buyers exist with those conditions?


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