Question: Earlier this week I read about strict new mortgage regulations going into effect.  I am concerned because I am self employed, and need a stated income loan to buy a home.  Will I be affected by the new regulations?

Answer: This was a roller coaster week on the front lines of the mortgage industry.  Mortgage brokers braced for a new law aimed at protecting borrowers from unscrupulous lending practices.  These strict regulations were set to change mortgage broker compensation, and likely cause major lenders to stop making stated income loans in Massachusetts.  Stated income – or no documentation – loans differ from traditional financing because a borrower doesn’t have to show proof of income.  These types of loans are integral for self employed business owners, a market that comprises near 30% of mortgages made in Massachusetts.

This tough stance was Attorney General, Martha Coakley’s reaction to recent mortgage market fallout and a rash of new foreclosures.  She hoped to curb poor lending practices, by placing consumer protection based liability directly upon lenders.  However, as the 11th hour approached, Ms. Coakley realized she may have overreacted, and delayed implementation of the strict regulations until January 2, 2008.

The delay should provide enough time to re-draft the regulations to ensure that a few bad apple loans don’t spoil the bunch.  Expected revisions will likely focus on egregious situations of unsupported stated income loans.  Also, mortgage brokers may be able to continue receiving compensation by means of yield spread – the alternative to paying points for ones loan.  Yield spread allows borrowers to spread out their points by slightly increasing their mortgage rate.

However, there is no guarantee the new regulations will reach this expected level of fairness, so be cautiously optimistic regarding the viability of stated income loans for 2008.

Attorney James Haroutunian practices real estate law and estate planning in Billerica at 790 Boston Road.  Contact him with questions at 978-671-0711,,, or email him at

Money, Finance, Mortgage, Loan

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