| Congress is expected to vote next week on new | | | | returns. Small business owners and the self-employed |
| rules regulating the loan business. The new rules would | | | | would be required to provide ample documentation to |
| likely get rid of s-called predatory lending, but lenders | | | | prove they can afford a loan. |
| caution that it would also make the financing process | | | | Certain exotic loans, such as an option ARM, which |
| more expensive and loans more difficult to obtain. The | | | | gives the borrower flexibility in payment size but |
| new legislation would require lenders to inform | | | | greatly inflates the principal, would all but disappear |
| borrowers the maximum they could pay on an | | | | under the new legislation. Lenders would be prone lean |
| adjustable-rate mortgage (ARM) and to thoroughly | | | | towards more conservative fixed-rate mortgages and |
| explain that the borrowers' payments will fluctuate | | | | specific ARMs. Many lenders have already begun the |
| based on current interest rates. | | | | shift toward safer practices out of necessity in the |
| Supporters of the new rules argue that they would | | | | wake of the worst financing meltdown since the Great |
| help prevent borrowers from getting stuck with | | | | Depression. The new legislation is intended to maintain |
| mortgages they simply cannot afford. The legislation | | | | the more responsible lending policies after the market |
| would also prohibit banks from offering incentives to | | | | regains health. |
| prospective borrowers to convince them to take on | | | | Should the bill pass, it would likely be another 18 to 24 |
| costlier loans when they could qualify for cheaper | | | | months before specific rules are written and |
| ones. This controversial practice was a major driving | | | | implemented. The Consumer Financial Bureau, the |
| force behind the subprime lending boom. | | | | regulating agency of the mortgage industry, would take |
| While there is a difference of opinion between | | | | at least nine months to devise the wording of the new |
| consumer advocates and lending agencies about the | | | | rules, after which the industry would require ample time |
| impact of this legislation, it will most certainly increase | | | | to put the policies into practice. Though they are not |
| the amount of work needed to obtain financing. The bill | | | | mentioned in the legislation, the regulator could choose |
| makes no mention of downpayment size or credit | | | | to add rules defining downpayment size, credit |
| score of applicants, but would most likely force lenders | | | | requirements, and debt-to-income ratio standards, |
| to revise both upwardly. Lenders will require applicants | | | | which would certainly impact everyday consumers. |
| to fully document income with pay stubs and tax | | | | |