New Subprime Rules to Disqualify Many Borrowers

WASHINGTON – Tens of thousands of borrowers would be disqualified from taking out a mortgage under new guidance approved Friday by NCUA and the banking regulators. The guidance comes as home foreclosures–specially those tied to exploding subprime mortgages–are skyrocketing, prompting calls by Congress and consumer advocates for action. The new guidelines require lenders to underwrite loans based on a borrower’s ability to make payments on a loan’s adjusted rate–not just its low introductory rate. About 75% of all subprime ARMs offered last year were so-called exploding loans with low flat, or ‘teaser’ rates for the first two or three years, then a higher, floating rates for the life of the 30-year mortgage. The new guidelines will also require lenders to collect more information to determine a borrower’s ability to repay the loan. They also require the lenders give the borrowers the option of refinancing out of an ARM at least 60 days before the interest rate jumps to a higher level, without penalty. The guideline were adopted by NCUA, the Federal Reserve, FDIC, Comptroller of the Currency and Office of Thrift Supervision.