Fed Tightens Lending Rules

The central bank is proposing regulations that offer greater protections for home buyers and curtail abusive lending.

WASHINGTON (CNNMoney.com) -- The Federal Reserve on Tuesday proposed a much stricter set of rules for mortgage lenders as part of the central bank's effort to avert abusive lending.

Some of the rules would apply to borrowers with what the Fed called "higher-priced mortgage loans," which it defined as first-lien mortgages that carry interest rates 3 percentage points higher than the yield on comparable Treasury securities - basically, subprime loans.

Another set of proposals Tuesday would apply to all mortgage loans. The rules are subject to public comment for 90 days, after which the Fed will review comments and consider whether to make changes to them before issuing final rules.

Subprime plan

"Our goal is to promote responsible mortgage lending, for the benefit of individual consumers and the economy," said Federal Reserve Chairman Ben Bernanke. "We want consumers to make decisions about home mortgage options confidently, with assurance that unscrupulous home mortgage practices will not be tolerated."

The Fed's proposals would:

Prohibit giving people unaffordable loans. The new rules would bar lenders from extending credit without considering the consumer's ability to repay.

One reason for the spike in foreclosures among those with subprime adjustable-rate mortgages (ARMs) was that lenders measured a borrower's ability to repay the loan based on the low introductory loan rate, but not on the higher rate that the loan would reset to. The Fed proposed that lenders base affordability on a borrower's ability to repay loan at the reset rate.

Restrict use of 'liar' loans. The Fed wants to restrict the use of so-called "liar loans" or "stated income loans."

When lenders make such a loan, they don't verify the income of the potential borrower. The end result: Home buyers end up with homes they never could afford in the first place, let alone when their rate resets.

It is now insisting on verification both on borrower's income and assets.

Prohibit or limit prepayment penalties. Homeowners who want to refinance into more affordable loans are often prevented from doing so because of punitive prepayment penalties - which can amount to the equivalent of six months of mortgage payments.

The new Fed rules require that lenders waive any prepayment penalties for 60 days prior to a loan rate resetting.

Require or encourage escrowing of taxes and insurance. Subprime lenders often did not disclose the true cost of a home. They might have excluded home insurance and property taxes, for example. Nor did they collect taxes and insurance along with the mortgage payment and hold them in escrow for the borrower until they came due.

Click title for full story.

US Federal Reserve targets 'abusive' mortgages

THE US Federal Reserve proposed tough new rules overnight in a broad crackdown on abusive mortgage lending practices almost two years into one of America's worst housing downturns in decades.
The central bank is racing to tighten up the rules governing the trillion-dollar mortgage market as US home sales continue to fall and property foreclosures spike across the country.

Fed chairman Ben Bernanke said the central bank was moving to clean up mortgage lending while also aiming to protect unwary home buyers from potential fraud.

"Unfair and deceptive acts and practices hurt not just borrowers and their families, but entire communities and, indeed the economy as a whole," Mr Bernanke said.

Some of the Fed's proposed rules specifically address "subprime" home loans granted to Americans with patchy credit and scant savings.

Defaults on subprime mortgages have been responsible for hundreds of thousands of home foreclosures this year that could create shockwaves for the US and global economies.

Treasury plan

Bernanke unveiled the Fed's proposals a week after US President George W. Bush endorsed a Treasury-brokered plan that could help up to 1.2 million distressed homeowners at risk of losing their homes to foreclosure.

The Treasury-backed initiative would help struggling homeowners refinance subprime loans or freeze the interest rates on their loans for up to five years.

"We do expect that the housing market turbulence will take some time to work through, and that there will be some penalty on our short-term economic growth," Treasury Secretary Henry Paulson said.

The Fed said it was acting because the mortgage market and its financing had become more complex in recent years, especially as big Wall Street banks had sliced up and traded large mortgage loan portfolios.

Click title for full story.

Mortgage Applications Rise

Despite a jump in interest rates, the Mortgage Bankers Association's application index increases in latest week to 811.8 from 791.8.

WASHINGTON (AP) -- Mortgage application volume increased 2.5 percent for the week ending Dec. 7, according to the trade group Mortgage Bankers Association's weekly application survey.

The MBA's weekly application index rose to 811.8 from 791.8 the previous week.

Refinance volume increased 4.3 percent, while purchase volume grew 1.7 percent. Refinance applications accounted for 57.6 percent of total mortgage applications during the week ending Dec. 7, compared with 56 percent during the prior week.

The index peaked at 1,856.7 during the week ending May 30, 2003, at the height of the housing boom.

An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume. A reading of 811.8 means mortgage application activity is 8.118 times higher than it was when the MBA began tracking the data.

The survey provides a snapshot of mortgage lending activity among mortgage bankers, commercial banks and thrifts. It covers about 50 percent of all residential retail mortgage originations each week.

Mortgage applications rose despite a jump in interest rates. The average interest rate for traditional, 30-year fixed-rate mortgages grew to 6.07 percent during the week ending Dec. 7, from 5.82 percent during the prior week.

The average interest rate for one-year adjustable-rate mortgages increased to 6.31 percent from 6.28 percent.

Click title for source.

Factory-Built Houses

It may not be cheaper, but it might be better, to have your next house built off-site and trucked in.

If you'd like to build a new house, whether it's right now or 10 years from now, you probably know most of the choices you'll face. Selecting your financing, building lot, house design, builder and contractors may be the big decisions. But there will be plenty of smaller ones that can drive you to distraction too, like what color to paint the powder room downstairs ("We need to know right now, pal") or whether a 1/2-hp garage door opener is the right size for you. In fact, the logical people in your life have probably warned you off the whole idea already, at least twice. But...

Saying that there are a lot of decisions to make, though, is not the same as saying none of them are fun. For most of us, selecting the house design is one of the high points. This is the time when everybody gets to dream a little, and there's nothing wrong with that. Usually these dreams are focused on traditional designs built in more or less traditional ways.

But this isn't true for everyone. Today, more and more buyers are opting for houses that are built on factory floors and then transported to the building site for final assembly. These factory-built homes have something for nearly everyone, and their quality is often better than you'll find in their site-built brothers and sisters–including those from the right side of the track.

The major problems with site-building are best seen during a building boom, like we've had for the last few years. Every component of the system gets stretched to the limit, especially job management. No-shows and unreturned phone calls become chronic. In most markets, you can also throw in bad-weather delays, skilled-labor shortages and a general decline in lumber quality.

What you end up with is a witches' brew of hard-to-control variables, most of which would be manageable in a factory environment.

Click title for full story. It's a long, detailed, excellent report on factory-built homes. Anyone already building, or just thinking about building a home will find this article informative.