What Does Reform Mean for Buyers?
NEW YORK (CNNMoney.com) -- Predatory lending would likely become a thing of the past if proposed regulatory reform rules are put into practice. And that may mean that mortgages get more expensive and more difficult to get, lenders warn.
The new rules, which Congress is expected to vote on this week, require that financial institutions ensure that borrowers can afford to repay the mortgages they are sold. Lenders would also have to tell borrowers the most they might pay on an adjustable rate mortgage and explain that payments will vary when the interest rate changes.
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"These rules should help make sure people aren't put into mortgages they can't afford," said Julia Gordon, senior policy council for the Center for Responsible Lending.
Additionally, the comprehensive reform package would also ban banks from offering incentives to steer borrowers into costlier loans when they could qualify for cheaper ones, a controversial practice that fueled the subprime lending boom.
And it would prohibit prepayment penalties for adjustable rate, subprime and other risky loans and limits them to three years for traditional loans. This would help prevent borrowers from being locked into expensive loans.