Trade Groups Concerned Over Non-Traditional Home Loan Regulations
While it’s important to use caution when choosing the right Florida home loan, many buyers are still drawn in my non-traditional home loans. The allure of purchasing a house they didn’t expect to be in their price range is often too much. For this reason, banks recently voted to increase restrictions on such exotic Florida home loans.
Bank trade groups and financial institutions aren’t pleased about the development. They dismiss concerns about risks to future home owners are overblown.
Complaints have poured in from groups representing federally regulated banks and thrifts, including the American Bankers Association, America’s Community Bankers and the Consumer Mortgage Coalition, suggesting that the new requirements are overly restrictive and, if adopted, would cause many Florida home loan lenders to stop offering the nontraditional home loans.
Problems with home loan regulations
One of the most aggressive mortgage lenders, Countrywide Financial Corp., said in its comment letter: “We do not believe that the risks associated with these particular loan products justify the specific and prescriptive guidance.”
Late last year, federal regulators proposed more disclosure and tighter requirements for borrowers to qualify for so-called “interest only” and “payment option” adjustable-rate mortgages. These loans allow borrowers to exchange lower payments during an initial period for higher payments later in the payment schedule - as opposed to the set amounts of a 30-year fixed-rate mortgage.
With borrowers risking a possible doubling of monthly mortgage payments as interest rates rise, regulators raised concerns about defaults of these complex Florida home loans and whether borrowers truly understand them.
The popularity of exotic home loans
The loans grew in popularity over the past few years as housing prices escalated in several regions of the country, but demand has cooled recently as general interest rates have risen. Many banks, in part because of regulators’ crackdown, already have stopped aggressively marketing nontraditional mortgages.
America’s Community Bankers said it supports appropriate disclosure to potential borrowers about alternative mortgage terms, but the group objected to requiring lenders to determine the best home loan for their clients.
“We do not believe it is appropriate or possible for the lender to dictate the best mortgage products for individual consumers,” the ACB letter said
The Consumer Mortgage Coalition, a trade group representing national residential mortgage companies, said in its letter that requirements should apply to all lenders including state-chartered mortgage companies, not only to federally regulated institutions.
Meanwhile, a few consumer advocacy groups, including the Greenlining Institute in Berkeley, Calif., and small banks wrote letters applauding strict guidance.
“It is very dangerous to use mortgage products that allow borrowers to buy homes more expensive than they can afford. Add this to a slowdown in the economy and the job market and we could have a serious recession,” said David Stone, president of the Portales National Bank in New Mexico.
Final thoughts on these unique Florida home loans
You need to be careful. We understand that the initial enticements of certain mortgages are difficult to resist, but think down the line. The long-term effects of various Florida home loans may cause more harm than good.
