Mortgage loans – The ways in which the mortgage loans have changed

The mortgage market has seen various ups and downs and has changed a lot with time. Last year (2010), the mortgage market experienced historically low interest rates and thus refinancing activities increased. Other than this, mortgage scams too had increased in the recent years. Thus, the Obama administration brought in some changes for the mortgage lenders and the mortgage loan borrowers.
The changes that have occurred
Some of the changes that were brought in are:
  1. Closing costs were capped at 3% – The closing costs have been capped at 3%. However, some other fees like the third-party charges, FHA insurance premiums, and so on haven’t been counted toward the cap.
  2. Marginal borrowers will face problems – The mortgage reform has brought in an “affordability” rule and it requires the borrower to show his affordability proof. People previously were able to take “no-doc” loans but with this new rule people will no more be able to get no-doc mortgage loans.
  3. Adjustable Rate Mortgages have changed – Borrowing an ARM too will be difficult as these will carry more conservative terms. The lenders will have to ask for the proof from borrowers which will prove his ability to make payments even if the loan has high interest rate. However, the ARMs may have fixed interest rate for first 5 years.
  4. Easy to get loans not making comeback – The easy to get mortgage loans such as the no-doc loans, interest-only loans, 40 year loans, option ARMs, no-down payment loans are not going to make a comeback. As per the law, these loans are considered to be the “non-qualified mortgages”. From now on the borrower will have to pass an affordability test in order to get a home loan.
  5. People may get better mortgage loan deals – Lenders generally used to offer incentives to the mortgage brokers if they recommended mortgage loans which would cost more. However, the new financial reform has made such incentives illegal.
  6. Restrictions on mortgage brokers – The mortgage lending rule has even introduced some restrictions on the mortgage brokers. The brokers can’t collect fees both from the lender and also the borrower. The borrower will have to either roll the closing costs into the loan or forward it as cash, or opt for a high interest mortgage loan.
Another change or rather prediction on the mortgage market is that the foreclosure process of mortgage loans is supposed to slow down in 2011.

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