Mortgage Reforms Hit Self-employed The Toughest

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In the United States, brand new polices on home loan lending are slowly coming into effect. These most recent polices target the risk involved with mortgages. These regulations however, are hitting self-employed individuals the toughest.

Brand new lending rules

As a way of limiting the amount of risk, home loan officers are required to disclose the amount of money they’ll make off a mortgage deal. One requirement is that all home loans and loans written by banks have to be maintained, at least partially. If a loan has a 20 percent or higher down payment (twice the current standard), banks would be able to avoid the risk-retention requirement. The underwriting standards for low-documentation or no-documentation loans would go up also. Industry experts estimate that, together, these standards could effortlessly increase the standard down payment to 20 percent or more while making low-documentation loans very scarce.

How the home loan crisis has to do with this

All of the low-documentation loans, or those with no documents, didn’t look good. After the home loan crisis, they received a bad name. Borrowers were able to get bad credit loans without really being able to qualify for them due to these “liar’s loans” along with zero-down home loans. After the crisis came, the zero-down loans foreclosed first. This was not the reason. Low doc loans were supposed to be used for other reasons. Low- or no-documentation loans were originally meant as a way for self-employed individuals or non-traditionally employed borrowers to qualify for mortgages. It is hard for those who are self-employed to get a home sometimes. Without pay stubs and with full tax documents only filed once a year, proving income can be very tough.

What the self-employed can do

The difficulty of getting home loans goes up for self-employed individuals. Nevertheless, there is funding. New small company lending programs are increasing the amount of funding available for entrepreneurs. Smaller businesses are able to get more lending. The Small Business Jobs Act has made sure of this. When these business owners want to buy a home, however, they will likely end up having to put more on the down payment and pay a higher interest rate to compensate for the higher risk of lending.

Articles cited

LA Times

latimes.com/business/la-fi-smallbiz-loan-20110411,0,6478827.story

Market Watch

marketwatch.com/story/bankers-pleased-with-skin-in-the-game-rule-2011-03-29?pagenumber=2

Financial Times

ft.com/cms/s/0/d725254a-5962-11e0-bc39-00144feab49a.html#axzz1JE6vSwFn

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