Could new mortgage regulations created to protect homebuyers under the Truth in Lending Act actually hurt more than it helps? The debate rages on, as mortgage brokers brace for what some argue will lead to less competition in the market, and therefore less credit for consumers. Charles Hugh Smith at our sister site, DailyFinance, explores the nuances of the new rules set to go into effect on April 1, to explain why the amendments may be shortsighted -- even harmful -- for prospective homebuyers.
New regulations limiting mortgage brokers' compensation go into effect on April 1, and they might prove to be appropriate for an April Fools' Day. Though aimed at unscrupulous mortgage brokers, it seems the regulations will instead hit the nation's struggling housing market.
The Federal Reserve Board says that its regulatory goal is to "protect mortgage borrowers from unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices." The basic idea is to prevent loan officers from steering borrowers into riskier types of loans or a higher-than-average interest rate to make a higher commission.
Officially titled "Loan Originator Compensation amendment to Regulation Z," The new rules apply to mortgage brokers and the companies that employ them, as well as mortgage loan officers employed by banks and other lenders.
Since most of us only deal with mortgage loan origination fees when we buy a home
or refinance a mortgage
, the average citizen will have a tough time sorting out the often-arcane issues at stake. But the bottom line is straightforward: the already-limited mortgage market is about to become more limited, as small mortgage brokers are essentially being shoved out of business. Call it "unintended consequences" or a cloaked plan to channel more of the mortgage business to the "too big to fail" big banks -- but regardless of the motivations, the rules may end up limiting consumer choice and make it harder for home buyers to get a loan.
While the stated goal of the new rules is laudable, those in the mortgage industry say it's a case of closing the barn door after the horse has bolted: the risky, subprime-type mortgages
that were the root cause of the problem have already vanished from the mortgage market.
Read the full story at DailyFinance.com.
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