Open House by Jim Woodard

"The recession is very likely over at this point," said Federal Reserve Chairman Ben Bernanke. This comment from such a credible source is very good news for today's home buyers and sellers.

However, as the housing market continues to stabilize, consumers need more protection when they apply for a home mortgage loan, whether it's to finance the purchase of a home or refinance an existing mortgage loan.

That's the conclusion of the Federal Reserve, and the reason the Fed is now preparing new consumer-protection amendments to the frequently changed Regulation Z. Generally, this regulation mandates detailed disclosures by banks or other lending institutions in the area of home loans, along with other requirements.

The most serious collapse in the housing and mortgage markets in many decades was primarily caused by home buyers who didn't have sufficient information about the mortgage they applied for and, therefore, took a mortgage they could not afford. And, of course, lenders and mortgage brokers who urged consumers to take these high-risk loans must take much of the blame.

"Consumers need the proper tools to determine whether a particular mortgage loan is appropriate for their circumstances," said Bernanke in a news release. "It's often said that a home is a family's most important asset, and it's our responsibility to see that borrowers receive the information they need to protect that asset."

Recently implemented rules require lenders to provide borrowers with an initial truth-in-lending mortgage cost disclosure within three business days of the application. Until the borrower receives the initial disclosure, lenders can't collect any fees except for the cost of a credit check. Previously, lenders and brokers collected appraisal, credit and other charges at the beginning of the application process.

Also, lenders must provide borrowers with a final truth-in-lending disclosure statement by three business days before the scheduled closing of the transaction. The lender can't close the mortgage loan until at least seven days after the applicant receives the initial disclosure statement, thus providing time for the borrower to read and consider the figures and overall transaction.

There are other new and proposed changes and additions to Regulation Z.

For more information, visit: www.federalreserve.gov/.

Q: Are FHA mortgages becoming more popular with home buyers?

A: FHA mortgages — loans insured by the Federal Housing Administration — are booming in popularity. In fact, the availability of these cost-effective mortgages is a major reason for the recent rise in home sales in most markets.

FHA loans reached a share of 23 percent of all mortgages at the end of the second quarter of this year. Its share was only 2.7 percent three years ago, according to a report from Inside Mortgage Finance. Outstanding FHA loans reached $439 billion in fiscal 2008. That number is expected to reach $627 billion this year.

At the midyear point, about 7.8 percent of FHA loans were 90 days late or more, or were in foreclosure, according to the Mortgage Bankers Association. That's about the national average for all mortgage loans — up from 5.4 percent a year ago. FHA mortgage losses are offset by premiums paid by borrowers. Federal law mandates that FHA maintains reserves equal to at least 2 percent of the loans insured.

The low interest rates and minimal down payment requirements of FHA loans make them very appealing to a growing number of home buyers, particularly first-time buyers.

Q: What is a mortgage "Cram-Down" procedure?

A: A Cram-Down is a proposed provision in a regulatory reform bill that would allow bankruptcy judges to modify mortgages on primary homes by forcing lenders to reduce (or cram down) mortgage balances.

Obviously, most lender organizations are against such a provision. Here's what David Kittle, chairman of the Mortgage Bankers Association, had to say about it:

"Allowing judges to retroactively modify borrowers' mortgage balances will destabilize a mortgage market that desperately needs stability right now. Treasury officials report that the administration's Home Affordable Modification Program (HAMP) is on target to reach its stated goal of 500,000 trial loan modifications by Nov. 1. We ought to let that program continue to take hold, rather than rushing to try to pass a measure that will do more harm than good.

"Loan modifications cannot happen overnight. But as the Treasury report shows, servicers are making significant progress," Kittle noted.

Reminder: In most cases, homeowners needing a modification of their mortgage can most effectively achieve results by discussing their situation directly with their lender. Hiring a so-called "modification expert" will just add to the problem by having to pay their large fees.

To find out more about Jim Woodard and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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