10 Ways Mortgage Loans Are Changing

With all the fall-out from the mortgage meltdown it’s not surprising that mortgage loans are changing. Many of the deals available during the past decade are not done and gone, not a loss for most borrowers.

What happened from 2004 through 2007 is that new forms of nontraditional loan products were introduced, so-called affordability loans. In basic terms these were loans which were financially plausible as long as home prices rose. Since home prices never rise eternally, it follows that the mortgage problems seen today were inevitable and were surely known in advance by the lenders who perpetrated such loans on the public.

So how has the mortgage marketplace changed as a result of the housing crisis? Here are 10 fundamental differences:

1. The option ARM is gone. A dreadful piece of financial dross, the option ARM is the mortgage equivalent of lead-flavored children’s toys, something that should never have been allowed in the marketplace.
2. Interest-only loans are as rare as bald eagles, but far less beloved. The justification for interest-only mortgages is that borrowers face lower monthly payments for the first few years of the loan. Alternatively, if borrowers need to save such small amounts maybe they should just borrow less. Oh, whoops, that would mean smaller lender fees and lower bids for homes.
3. The no doc loan application is now available only to those with massive downpayments and sterling credit. Ask yourself: Would you loan $500,000 to a stranger if they could not show evidence of an ability to re-pay?
4. Loan officers must be registered under the Nationwide Mortgage Licensing System, licensed by a state or both. The NMLS means loan officers who lose their licenses in one state cannot register elsewhere. As of February 2010 45 states were in the program, all states should be in by the end of the year, and 67,785 licensees or applicants had enrolled to take the national or state test components.
5. Numerous states have enacted tough rules which lengthen the foreclosure process. The result is that it’s now more costly for lenders to foreclose, something that might encourage loan modifications.
6. Large numbers of lenders that sold “nontraditional” loans have gone out of business.
7. Fannie Mae and Freddie Mac were nationalized by the Bush Administration, whoops, er, I mean placed under a conservatorship.
8. More and more often, judges are asking lenders to prove that they actually own the mortgages they claim are unpaid.
9. After years of delay, the government has finally introduced new Good Faith Estimate and HUD-1 closing forms. Estimated consumer savings per transaction: $700.
10. Nearly 1 million homeowners have enrolled in the government’s Making Home Affordable program in an attempt to modify their mortgages.

Oh, and here’s something that hasn’t changed: Predatory lending is still NOT a crime under federal law.

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