The Federal Reserve is at a tug of war with setting new Mortgage Regulations.  On one side, the consumers are stating with the new rules set to be enforced in December, there are too many loopholes that will cause consumers to continue to default and allowing reckless lending to continue.  On the other side, the lenders are stating that with the new rules it will limit them on who to lend to and will prompt them to further restrict credit.

 The Fed claims the new regulations will prevent sub prime borrowers from getting into loans they can’t afford.  With the way the rules are currently set up today, borrowers can still obtain mortgages by showing limited documentation.  Consumers are worried this will continue to hurt the economy.

Consumer’s Side 

Consumers are stating the Fed needs to enforce rules that require banks to document the borrower’s ability to pay.  Get rid of all the Stated income loans and require the borrower to prove their ability to pay.  If a consumer is looking to purchase a primary home and claim they make $100,000 a year, then make them prove this in tax returns or W-2’s. 

 The Fed needs to close the doors on fraud and misbehavior so this market can stabilize.  If the fed continues to allow borrowers to obtain a mortgage with the current rules in place, the market will continue on the road to destruction. 

Another rule consumers are hoping the fed will change is to eliminate pre-payment penalties.  Advocates cliam pre-payment penalties cause more harm than good. 

 Lenders side

Lenders claim with the new regulations, lenders will lend fewer mortgages and increase the amount of work they would have to do. 

Also lenders are stating the Fed needs to clarify the new rules on how to determine a borrower’s willingness to pay.  Even though with the new rules it still gives the lender options on how to determine a borrower’s ability to pay.

My Side 

 Overall lenders are worried the market is going to continue to spiral downword and the only thing the Fed is doing to prevent this is cause them more work and less loans. 

It’s a tough market right now and the fed is doing everything they can to prevent the market from getting worse.  Nobody has an answer right now and as a consumer, we’re just going to have to sit here and deal with what we’ve created.

 Being in the mortgage market, I’m seeing more rules and less loans, but the loans I have been seeing are cleaner loans.  The consumers we were seeing before asking to go stated are now submitting tax returns and w-2s.  I personally think the new rules are tough because it’s more paper work and a longer process, but in the long run it’s creating more qulified borrowers and allowing us to lend money to borrowers who can pay the loans back.

We just need to keep working through this tough time.

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In a clear sign the federal government is far more concerned about the financial health of mortgage finance giants Fannie Mae and Freddie Mac than its public comments indicated as late as Friday, the U.S. government Sunday night announced what some are calling a “massive aid” package to the two shareholder owned and run companies officially cementing a government relationship that till now was only implied but never admitted to.
According to a Reuters dispatch, the plan, which will require swift approval from Congress, is designed to “head off a potential meltdown in financial markets.”

Here’s what the government is offering Fannie and Freddie:

1. Access to its emergency cash–the so-called discount window
2. A huge “temporary” increase in the line of credit available
3. The U.S. Treasury will, for the first time ever, purchase equity in both companies should it be needed
4. Investigation by the Securities and Exchange Commission to stop the spread of “false information.”

Both Fannie and Freddie are vital to the housing market–they buy mortgages from banks and other lenders and either keep them or repackage them into securities that are sold to investors.

“Welcome to the socialist state”

Strong words from some critics are already greeting the government plan. Josh Rosner, the managing director at Graham Fisher in New York told Reuters, “It’s outrageous. It’s offensive. Welcome to the socialist state. In capitalism, winners are supposed to reap rewards and losers are supposed to take losses for bad risk management. These are private companies.”

But others are deeply concerned that should Fannie and Freddie fail–though they both say they are well capitalized–the shockwaves would cause a financial meltdown world-wide.

The most troubling part of the government plan,perhaps, is the possibility the Treasury might buy equity in Fannie and Freddie. Some critics charge this could end up costing taxpayers enormous sums of money.

It will be interesting to see whether Wall Street gives the plan a thumbs up or thumbs down during Monday’s trading.

Here are 2 more articles worth reading:

• Government as the Big Lender
• Treasury Acts to Save Mortgage Giants

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This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

FEDS BAIL OUT FANNIE AND FREDDIE; EMERGENCY MEASURES TAKEN

It’s like one of those TV shows where after an entire season in which everything goes wrong for the star, he finally awakes to find it was all just a bad dream–everything was just fine!

Jesus. Who wants to watch a show that has an unhappy ending?

Apparently, we all have to watch it and, worse yet, live through it!

What began as a real estate debacle is now a full grown global economic crisis.