Wall Street Reform Encourages Safe Loans

The new financial overhaul law that President Obama signed into law is still being dissected, but some regulations that affect homebuying and mortgages have already been defined. Here are the key tenets:

• Lenders must prove that borrowers can afford their mortgages. Government guarantees will be voided if lenders don’t demonstrate that they have thoroughly investigated a borrowers’ ability to pay.

• Banks and other entities that pool mortgages and sell them to investors must keep at least 5 percent of the investments on their own books – an incentive to avoid poor quality loans.

• Low-risk mortgages, mostly 30-year fixed-rate loans, are exempt from many regulations. That should encourage lenders to put homebuyers into “plain vanilla” mortgages.

• Bonuses for brokers based on the cost of a mortgage are banned.

Source: Associated Press, Daniel Wagner (07/21/2010)

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