What About Good Risk Borrowers?
Today’s current housing market fiasco has created problems for many individuals and lending companies alike. If looked on a line spectrum there are those consumers with excellent credit who will pretty much be able to ride out the storm and get future credit when they need it, and on the other far end of that line are those with bad credit who will be pretty much locked out of any near-future credit for a number of reasons. But what about those consumers who are in the middle of that spectrum?
Those in the middle are actually the vast majority of borrowers and consumers. They may have a few problems on their credit reports but, generally, they pay their bills on time and have no serious faults lodged against them. If certain policies begin to go into action, these middle consumers may face some new challenges including tighter credit and higher interest rates. When it comes to buying a new home, they may find even more problems.
At issue is the Mortgage Reform and Anti-Predatory Lending Act of 2007 (HR 3915), which is now making its way through Congress. The new law would have lenders look for any of a series of risk factors. These factors include such things as borrowers who can only make a very small down payment or none at all, borrowers who cannot completely document their income and assets, borrowers looking to buy property that is something other than a single-family home, borrowers looking to buy investment property, borrowers with low credit scores, borrowers with mortgage packages that carry an adjustable rate that will result in substantially higher payments within a few years of closing.
In the past lenders would accept borrowers who had a few factors in their current or past history. That is changing. Under the new law, lenders would be discouraged from working with anyone who had more than two of these factors. Those with three or more would almost certainly be denied the home loan.
A major provision of HR 3915 establishes “minimum standards for mortgages,” which include requirements that borrowers have the “ability to repay” and that they receive a “tangible net benefit” from refinancing. The problem for middle line consumers is that the rules have no real definition of what applies and what does not.
Because many lenders will not know if they are complying with the new law, they will probably hedge their risk and charge higher rates for those who are in question.
The best advice for future homeowners is to look at the risk factors above and begin making improvements now rather than waiting. The fewer risk factors you have the better your chances of getting a decent home loan.