Current Mortgage Rates Make Housing Cheap
Recent mortgage rates have been at a record lows, making the cost of owning your own home cheaper than it's ever been before.
But some in the financial services industry are concerned that new legislation currently under consideration by the U.S. Congress could bump up home ownership costs. And groups of mortgage brokers, bankers, and other interested parties yesterday wrote to the House Committee on Financial Services to protest.
What's the Problem?
The committee is considering the bill titled H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009, introduced just recently. The problem some have with it is a fairly technical one, though easy to understand.
The current bill says:
''SEC. 29. CREDIT RISK RETENTION.
''(a) IN GENERAL.--
''(1) INTEREST IN LOANS MADE BY CREDITORS.
--Within 180 days of the date of the enactment of this section, the appropriate agencies shall prescribe regulations to require any creditor that makes a loan to retain an economic interest in a material portion of the credit risk of any such loan that the creditor transfers, sells, or conveys to a third party, including for the purpose of including such loan in a pool of loans backing an issuance of asset backed securities.
And Just What Does That Mean?
Perhaps you remember that one of the main causes of the credit crunch was the practice that lenders had of packaging up mortgage loans into bundles, and then selling them on to other financial institutions. This allowed them to make loans to inappropriate borrowers because they knew that the liability would be passed on to someone else.
The new law doesn't aim to ban that practice but it does aim to force original lenders to retain a stake in the loans that they sell. That way, they have a real incentive only to make good loans. The best mortgage lenders have more sense than to completely resist the move; however, they are lobbying for it to be watered down.
New Law a Threat to Cheap Mortgage Loans?
In a recent letter to the House committee, the Mortgage Bankers Association--along with others-- said:
We firmly believe that the language, which establishes an across-the-board credit risk retention requirement, will raise consumer borrowing costs and limit the availability of affordable mortgage options. We support the concept of establishing accountability requirements for lenders, but a more prudent approach is to establish risk retention requirements based on the level of risk with a clear distinction for safe, sound and simple mortgages.
So, they're warning of a rise in mortgage loan borrowing costs and suggesting as a compromise the establishment of a new category of mortgages. Mortgages that are so transparently safe that they'll be excluded from the requirement that lenders retain an interest in the mortgage loans they make.
Compare Mortgage Rates Now
Whatever Congress eventually does, few believe that record-low mortgage rates can last for long. If you're thinking of applying for a new mortgage or refinancing, compare today's mortgage rate now.