The U.S. government’s pending financial reform bill will most likely affect many aspects of the way customers experience the financial and banking world. One part of the legislation that has been overshadowed by changes to fees and banking regulations could be the alterations to the mortgage industry.
The Senate and House of Representatives have yet to convene for the final discussion of what they’ll send to President Barack Obama for approval, but we can take hints from the separate Senate and House bills to see some of the mortgage-related changes that are on the table.
A New Consumer-Protection Agency
Both the House and Senate bills call for the creation of agencies meant to regulate the home loan industry. The House bill suggests a stand-alone group while the Senate asks for a bureau within the Federal Reserve, but both want the same thing: An institution that will keep lenders from engaging in the predatory and risky behaviors that helped push the nation into the financial crisis several years ago.
Increased Credit Score Transparency
If your mortgage application gets turned down, the lender would be required to provide the credit score information they used to make the decision.
You would get to see your credit score, the firm that provided the credit report and short descriptions of the negative information that caused the low score.
Sanctions on Real Estate Appraisal, Improved Overall Standards
The proposed consumer protection agency would have oversight on appraisals. This would theoretically keep appraisals from being impacted by pressures or influence from lenders or real estate agents.
The proposed legislation would encourage mortgage lenders to offer mortgages only to those who can verifiably afford to repay the mortgage, taxes and insurance costs.
Limits on Prepayment Penalties
One of the biggest problems for homeowners during the mortgage meltdown was the fee structure that came along with some adjustable-rate mortgages. When consumers in the past tried to refinance early, they faced heavy penalties and increased payments. Under the expected rules, prepayment penalties would not be allowed on certain loans and lenders would be required to offer financing alternatives before punishing homeowners.
To read the Senate’s financial reform bill, click here (PDF).
To read the House’s version of the bill, click here (PDF).