Federal Regulators Prepare to Tighten Mortgage Rules

Los Angeles Times (07/09/08); Reynolds, Maura; Lifsher, Marc
While the Senate continues to debate a bill that would allow struggling borrowers to easily refinance into FHA mortgages, the FHA plans to expand the availability of its low-cost mortgages to borrowers who owe more than their homes are worth or are already late on their payments. The agency will eliminate a requirement that borrowers must have made payments on time over the past six months and will also open up FHA financing to borrowers who lost their jobs or are in the midst of a divorce. Meanwhile, the Federal Reserve is preparing to release tougher rules for all lenders by mandating that they verify borrower incomes and repayment ability over the life of the loan, possibly ban the use of the word "fixed" when a loan could see higher rates later or mandate that borrowers be notified of rate resets 60 days beforehand. Steve O'Connor, senior vice president of the Mortgage Bankers Association, is concerned that additional mortgage restrictions might "deny worthy borrowers reasonable access to credit."