Oregon Mortgages

"suitability standards"

I received an email today from a news letter that I signed up for. It has quite interesting information in it.

Today’s newsletter was titled “suitability standards” and goes on to state that the Mortgage Bankers Association (MBA) is making a preemptive strike towards the mortgage industry itself. Over time we’ve seen your standard 30 year fixed mortgage with 20% down evolve into other mortgages. Mortgages such as Interest Only, ARM’s, Option ARM’s….etc. otherwise known as “exotic mortgages.” It appears that some consumer groups don’t believe this is in the consumers best interest since using these tactics helps a borrower qualify for a home they might not be able to buy with a standard 30 year fixed rate.

The MBA published a report that was titled “Suitability- Don’t Turn Back the Clock on Fair Lending and Homeownership gains.” The report states that congress should resist the temptation to put more regulations on the lending guidelines as it could have unintended negative impacts on firts time home buyers and various individuals thus turning back the clock on hard won fair lending practices.

It appears that some consumer groups would like to have more restrictions on our lending practices to ensure that a borrower is obtaining a mortgage that is in their best financial interest. This can certainly go both ways when you look at it. “exotic” loans are designed to help a person get into a home, especially people who CAN’T qualify for a standard conforming 30 year fixed due to some past financial or other reasons; whether it was a divorce and it pushed them into bankruptcy or a job loss that they were unable to pay some bills thus having collections which dropped their credit score just to name a couple. These people are sure to rebound but is it fair to tell them they aren’t allowed to own a home? Of course there are people who probably won’t change the way they are and could end up in foreclosure. Nothing is perfect but we try our best to educate borrowers.

The report also states that while no formal standards have been put on the table to outline what the standards should be various suggestions have been made. Most of which make the process more rigid with a lender having to look at a borrower’s file and address the issue of “is this the best mortage for his financial conditions” which in turn will put the lender between the “suitability standards” and the “equal credit oppurtunity act.” It’ll be a fine line that everyone is walking on, not wanting to violate any of the laws in place. However we will most likely see a hike in denials for various people wanting to purchase a home.

Another problem that will arise is that we could see lenders close up shop for fear of violating any of the laws or very tightly protecting themselves; this could impact everyone as we could see an increase in prices.