Changes in mortgage legislation might help housing recovery

Despite numerous gains, the Federal Reserve and the Federal Deposit Insurance Corp. are proposing changes for a bank requirement - the institutions currently have to keep a segment of mortgage securities sold to investors - since it may be slowing market growth.

Real estate is affected by many things, and the recent surge in the housing recovery has had several influential factors.

Despite numerous gains, the Federal Reserve and the Federal Deposit Insurance Corp. are proposing changes for a bank requirement - the institutions currently have to keep a segment of mortgage securities sold to investors - since it may be slowing market growth.

According to The Wall Street Journal, the key point of contention was originally instated in the Dodd-Frank Act to prevent banks from handing out securities that combined subprime loans with mortgages that had an increased likelihood of default. 

The goal of the original proposals was to make sure banks only created quality loans, to help protect the borrower. In 2011, an amendment limited the reach of these financial regulations, excluding mortgage securities including loans with at least a 20 percent down payment. 

Overall, the financial regulators want to increase the ability of the average person to acquire a mortgage or loan, without the risk of being taken advantage of by banks. In theory, the more buyers that have access to good financing, the more homes will be sold. Given the recent economic recession, stimulating growth is a priority for many government enterprises. Unfortunately, trends aren't reaching everyone's expectations.

"One of the risks that we face now is that there is still a pretty significant part of the population that is having considerable difficulty accessing mortgage credit,"  said Ben Bernanke, Chairman of the Federal Reserve, in testimony to Congress.

More people taking chances with financing
Traditional advice might recommend a fixed-rate mortgage, due to the currently changing economic state in the U.S, but some are going with an adjustable-rate instead. 

Current savings are motivating borrowers to go this route, despite potential hazards in the future as rates could potentially rise, according to Bloomberg. Jung Lim is one such person using an ARM to buy a home, since the rate is slightly lower than its fixed-rate counterpart.

"If I could have gotten a 30-year fixed at the interest rate I'm getting the ARM for, I would have felt a lot more comfortable," Lim told the news source. "But I'm hoping to refinance in five years or less. And we'll be in the house for about 10 years so we could also sell. Hopefully prices have bottomed so we won't be underwater then."

The greatest risks associated with this type of loan are the odds of predicting the future. Since many people assume their financial situation will improve as bills increase, committing to an adjustable rate is a gamble, Bloomberg added.



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