Feds Establish Loan Underwriting Requirements
Jack M. Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania has composed an excellent series of articles on the Mortgage 101 website
Entitles “New mortgage underwriting rules will be tough to enforce”, Guttentag discusses the problems that regulators will have when trying to make sure that lenders comply with the intent of the Federal Reserve Board.
In writing, the Professor examines board proposals to curb lax underwriting rules, unfair practices by mortgage brokers, and abusive practices by loan servicing agents in respect to this salient statement
Underwriting requirements set by private markets tend to become increasingly liberal when house prices are rising. Rising prices convert bad loans into good ones — good, at least, from a lender perspective. If the borrower can’t make the payments, having equity in the property allows the borrower to refinance into a mortgage with lower payments, or to sell.
It is our opinion that this one series will do well to educate current and prospective mortgage holders as to the problems facing themselves and the mortgage industry.
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