Mortgage Loans See Key Changes for Borrower's with Weak Credit

The Federal Reserve is requiring more diligence from mortgage lenders who make high cost mortgage loans for borrowers with weak credit.

Four key elements for mortgage loans secured by a borrower's principal residence:

1. A lender cannot make a mortgage loan without regard to borrowers' ability to repay the loan from income and assets other than the home's value.

2. Lenders must verify the income and assets they rely upon to determine mortgage loan repayment ability.

3. Ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years.

4. Required to establish escrow accounts for property taxes and homeowner's insurance for all first-lien mortgage loans.

Mortgage Rates Will Change When Fed Programs End

Mortgage rates are sure to be affected when the federal government winds down two programs which have helped to stabilize the housing marketing, the first time home buyers tax credit, and the purchase of mortgage backed securities.

While current mortgage rates are still low, things will change when the Fed exits the market and the yield spread between mortgage securities and Treasury securities increase to attract buyers, which likely means higher mortgage rates at that time.

Current Mortgage Rates

So far, the mortgage rate forecast from Fannie Mae and the Mortgage Bankers Asscociation, which predicted rate increases, is not happening. Actually, current mortgage rates have decreased lately, along with the 10 year treasury yield. Homebuilders are reporting news of increased sales, and the percentage of resale homes that were not foreclosures has been increasing.