New Mortgage Regulations and the Economy

Comments on the new mortgage rules released July 14th, 2008

I just read the new regulations released by the Feds. I believe that they address lots of issues that have been plaguing the consumer.

The prepayment penalties have been always a big hurdle for people trying to get off high-cost mortgages. They often extend through five years.

I remember a case when we wanted to pay off a mortgage. We were only missing one month from the three years penalty to expire.
I offered the bank to pay them the month in advance, just to avoid the penalty. I begged and talked to a few officers, to no avail. I tried to explain that the bank would in fact benefit from it, since we would be giving them a full extra monthly payment which would be the equivalent of waiting for the penalty to be up. They coldly refused.

This is the kind of situation that could be avoided with the new rules.

The new rules put on the lender the burden of verifying that a borrower will be able to repay a loan from his income or own assets, rather than counting on the revaluation of the home value. Three or four years ago, such a measure would have prevented more than a “flipper” to speculate and cause economic harm to the lender, the builder or himself.

I have to do some research about the “no-income-verification” loans, and if they will still be available when a large down payment is proposed, and the borrower’s high credit score could justify it.

I am sure that these are essential steps that had to be taken to avoid future mortgage crisis. As usual, they are too late and might negatively affect lenders’ flexibility.

I had recently noted the growing difficulties in obtaining a mortgage. These new regulations could further deteriorate Florida real estate market and delay its recovery. But no one can discuss the necessity of bringing back to reality what was once a solid industry that went completely off course.

The real estate wild ride started around 2001, which effects are been suffered today, would have in good part been avoided had lenders applied some of these rules. Meanwhile, big money has been made by players in the mortgage industry and big money has been lost, mostly by homeowners and small investors.

In reality, I believe that the real estate “boom” allowed US economy to survive a few years feeding on the ability of homeowners to draw funds from their inflated and unreal home equities, using the recourse of refinancing.

The fact is that America and Americans are deeply in debt. We are surviving by selling out our country, our jobs, and our currency to all the countries that have financed our madness during the last decades.

One “boom” after another have only prolonged the agony, putting meanwhile millions or billions in the pockets of a few, while sinking a majority of our citizens in credit card debt, stock market losses, and home foreclosures.

My opinion is that America will only be as strong as its real economy can be. Not the Wall Street and hedge funds economy, but our industrial force, our human resourses, technology, industrial and agricultural production.

While we are exporting our jobs, losing our technological advantages in manufacturing know-how, closing our factories, replacing our food production with ethanol production, selling our major corporations, selling our land, selling our prime real estate to foreign corporations, just to pay off our huge trade deficits and the outrageous oil prices, we will be on the wrong path.

Job losses and underpaid jobs are increasingly undermining middle class. Outsourcing started by affecting lower-paying jobs, but has extended, and now affects our college graduates, our engineers, the core of our workforce and even the higher spectrum of our society. Unemployment, inflation, and stagnation have to be reckoned with as ominous threats, and no more be ignored.

The cold fact is that the famous American dream of home ownership is fading because most people simply cannot afford it any more.

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