By Steve Alexander Reporter
.
Published: Tue, December 18, 2007 - 8:12 pm
Last Updated: Tue, December 18, 2007 - 8:53 pm
Steve Alexander
Some new rules may be coming to protect you from shady lending practices.
The rules endorsed by the Federal Reserve are especially designed to protect borrowers with low credit scores.
Ed Lagman with AFC Mortgage in Mobile says the Federal Reserve wants "to require that the person's income be verified, that they actually have the ability to pay the loan back."
Jeff Newman, the Executive Vice President of the Mobile Area Association of Realtors, says the mortgage market has gotten very loose lately.
Newman says, "People could get in with little or no down payment, which created an issue. If somebody had a problem making a payment, they would walk away because they had nothing invested with no down payment on these mortgages."
Lagman cites another advantage of the new rules.
He says, "When a lender quotes a fixed rate, it has to be a true fixed rate. Right now, there are advertisements going on right now saying '30 year fixed rate,' and all it is, its fixed for only six months."
However, the rules aren't set in stone just yet.
The Federal Reserve may make some changes.
The new regulations could take effect as soon as next year.
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In the common sense world that most of us inhabit, you’d never give a loan to someone without a reasonable assurance that he could pay it back. Unfortunately this isn’t how the Fed and its dependents work.
What happens is this: The Fed expands credit by creating money out of thin air. Then it turns around and lends this money to banks and mortgage institutions, which in turn lend it out to folks seeking a mortgage.
If you are in the business of mortgages, then it seems reasonable that the more loans you give, the more money you stand to make. The problem is that in order to give out more loans, you must take on marginal loan customers, people who would normally fall just below the threshold of qualifying for a loan. So the normal loan requirements get relaxed.
The proper course for the Fed it to tighten credit, but instead it is saying “Do as I say, not as I do.” It won’t stop the easy money, but it is demanding that lenders do it instead.