Questions: With the Feds Tightening Up Rules, Will This Affect My Ability to Purchase or Refinance a Home?

Answer: Maybe. If you can provide proof of your income and assets obtaining financing should remain relatively easy. If proving your income is difficult, your credit score and mortgage payment history will become crucial factors to determining if lenders are willing to approve your loan.

The Federal Reserve has requested some changes that will provide some safeguards for homeowners. The public has 90 days for input before any of the changes could go into effect.

Here are a few of the highlights:

Prohibit giving people unaffordable loans - Lenders are going to be forced to show that the borrower can afford the payment. This will most likely eliminate the use of stated income in the subprime lending category. Borrowers with a track record of great credit and mortgage history should still be able to obtain stated income loans since their past can serve as evidence of their ability to afford the new loan.

Prohibit or limit prepayment penalties - Lenders will no longer be able to impose a pre-payment penalties that last longer than the fixed period of ARM's (Adjustable Rate Mortgage). The lenders would have to waive the pre-payment penalty 60 days prior to any adjustment. This move will certainly help subprime borrowers, but these measures have been in effect at most subprime lenders for the last 6 months. It may greatly affect the "Option Arm" options available on the market. These loans are typically only available to well qualified borrowers and the lowest payments come on fully adjustable rates that traditionally involve the borrower committing to the loan for a period of time. The lenders will undoubtedly adjust their programs to conform to the guidelines, but educated consumers may ultimately lose with fewer options available.

Require or encourage escrowing of taxes and insurance - This requirement would only apply to subprime loans. Lenders would prefer you escrow your taxes and insurance and have followed the practice of charging for not escrowing. The choice to escrow your taxes or insurance is still a decision left to the borrower, but choosing to waive this service will certainly require your clear authorization.

Curb or better disclose broker incentives - Requires brokers to clearly disclose all sources of income, including yield spread premium. Honest brokers have been clearly disclosing all sources of income on the good faith estimate and the settlement statement for years. This should expose those brokers which choose not to follow ethical business practices. Banks and direct lenders still are not required to disclose this information, so the playing field isn't completely level.

Prohibit coercion of appraisers - Lenders would be prohibited from exerting pressure on appraisers to achieve certain values. Prohibit loan servicers from engaging in unfair practices - This would provide borrowers better access to their records, same day posting of mortgage payments, and protection from escalated fees. This measure will go a long way to getting the unsavory loan servicers to get in line with the rest of the loan servicing industry.

Require better disclosure overall - The Federal Reserve is looking to help consumers distinguish what mortgage advertising can be believed. They are looking to do away with using the term "fixed" when referring to a loan unless the loan is actually fixed for the entire duration of the term. Another well aimed target is the advertising surrounding Option Arms, these ads typically promote only their minimum payment and not the actual interest rate the loan is accruing. This practice will no longer be acceptable and will hopefully keep uninformed consumers from doing business with an unscrupulous business. Overall, the Federal Reserves proposed changes will have little effect on lenders, servicers, and brokers who are doing honest business and will hopefully expose and eliminate those providers that are putting a black eye on the industry.

Looking for additional information:

Prosperity Financial 877-589-9950

http://www.myprosperityfinancial.com/

Question: Should I Lock My Mortgage Rate

Answer: The decision to lock your rate can depend on several factors.

It is important to understand what actually takes place when your broker or lender locks a rate. A broker typically has the ability to lock a loan with a lender prior to having a loan approved. Once a rate has been locked the lender will provide a lock confirmation that includes the details of the loan. Lenders typically allow you to lock rates for 15 days, 30 days, 60 days, 90 days, and even longer. Longer lock periods may require an upfront lock fee to secure the rate. Lenders charge for this service since they must go out and hedge the market to secure that funds will be available when the loan closes. Your broker or loan officer is your best source for deciding the best time to lock a loan. Typically, it is best to lock the loan if you are satisfied with the terms and payments. Small rate reductions will only have moderate payment benefits. Choosing to float your rate and finding out that your rate has increased can add stress to the transaction. Make sure your broker explains to you the time frame for completing the transaction. If you lock your rate for 15 days then the process needs to go quickly to complete everything prior to the lock expiring. If you anticipate delays gathering your documents or arranging for someone to allow an appraiser access to the property you may be better served to lock the rate for 30 days. If your rate lock expires prior completing the loan process, you will be required to pay additional fees to secure the rate. Some lenders will allow short term extensions at no cost. It is extremely important that your broker communicate with you to ensure the process is complete prior to any rate lock expiring.

Looking for additional information:

Prosperity Financial 877-589-9950

http://www.myprosperityfinancial.com/

Question: Rates Have Dropped, But I Locked My Rate... What Are My Options?

Answer: You should speak to your broker or lender and have them evaulate the circumstances.

Your broker should have locked the rate at the lender that was providing the best rate at the time you requested the lock. This puts your your broker is a tough spot. The reason they were able to secure the original rate was a relationship with a lender. When the broker locks a loan, the lender secures the funds and counts on the loan closing. If the broker chooses to take the loan to a different lender or investor to secure a lower rate the relationship with the primary lender is strained. Most brokers resist moving the loan to another lender unless the reduction in rate is significant. Keep in mind that there was a reason they locked the loan with the initial lender and the reason was most likely that they provided the best rate. Even with a slight reduction in rate, the initial lender probably still has a more competitive rate than the broker's second or third choice for an investor. The evening news likes to report on the average mortgage rates and it makes for a good story but usually does little more than show the trend of the market. Your broker or lender should be able to discuss with you the current environment surrounding your particular market and help you decide the best time to lock your rate.

Looking for additional information:

Prosperity Financial 877-589-9950

http://www.myprosperityfinancial.com/