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How Financial Overhaul Changes the Mortgage Market

Here’s a look at some of the main changes for mortgages:

  • The bill requires lenders to have “skin in the game” on certain loans that are bundled and sold to investors as securities. The provision requires lenders to retain at least 5% of the loans that are securitized. The bill exempts certain “safe” classes of mortgages, such as fixed-rate loans that require borrowers to fully document their incomes.
  • The bill sets stricter limits on prepayment penalties, or fees charged when borrowers pay a loan off early.
  • Lenders will have to take greater steps to ensure that borrowers have the ability to repay the loan they’re receiving. That means consumers will be required to show lots of paperwork—pay stubs, bank account statements, tax forms—to prove that they can afford the loan. (That could cause problems for some self-employed borrowers).
  • One key provision tries to improve transparency of compensation for loan officers and mortgage brokers. Brokers and loan officers can’t be paid based on steering the customer to a particular type of loan or rate.
  • Other changes will modify new appraisal regulations that have been put in place in the aftermath of the mortgage crisis. Lenders will have to compensate appraisers at a “customary and reasonable” rate, and new appraisal management companies that facilitate the ordering of appraisals will have to be registered with state agencies.
Read the complete story: http://blogs.wsj.com/developments/2010/07/16/how-financial-overhaul-changes-the-mortgage-market/

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