Fed Regulators to Mortgage Lenders: No-Doc, No-Loan

As if common sense wasn’t needed in the mortgage industry, new federal regulations require mortgage lenders to verify that prospective borrowers can meet the repayment terms of their mortgage loans.

Under the Dodd-Frank Act, the rules prohibit the “no-doc” loans common during the housing bubble. Before making a loan, lenders must document the borrower’s job status, income and assets, debt, and credit history also known as “full-doc”.

Lenders must calculate a borrower’s ability to pay the principal and interest over the length of the loan, and they may not base their calculation solely on the payment due when an introductory “teaser rate” is in effect.
In other words, just because you can afford the first 3 years of interest only payments, will not get you a loan that you won’t be able to afford down the road.

With mortgage reform long over due, it’s nice to have some set ground rules for all to follow. Following the collapse of the housing industry, most lenders imposed strict standards for financing to prevent further loses. These new changes will hopefully strengthen the overall real estate market and allow more people the ability to secure a home mortgage.
Excerpts of this story were provided by the California Association of Realtors

Do you think this will be good or bad for the housing industry? Share your thoughts.

About Daniel Di Matteo

Realtor at CENTURY 21 Award, Daniel was Voted U-T San Diego’s Best Real Estate Agent in 2014. A Husband, Father, and most recently, accomplished Blog writer, which explains your visit today.