Will financial reform law make it more difficult for homeowners to get a mortgage?

One of the big complaints from financial analysts and my grouchy neighbors during these tough economic times is that mortgage lenders caused a lot of the country’s current financial problems by passing out mortgage loans to borrowers who didn’t have the financial strength to pay these loans back.

Lenders gave out mortgage money to anyone with a pulse, the complaint went, even if they had lousy credit scores and high levels of debt.

Well, a new report from the CMPS Institute — an organization that trains and certifies mortgage bankers and brokers — suggests that it might soon become far more difficult for borrowers to qualify for a mortgage loan.

The institute blames Congress (who else?) and the massive financial reform bill that its members just passed.

“Homeowners and buyers who are sitting on the sidelines should get moving today unless they want to get blindsided by the impact of a new law,” said Gibran Nicholas, chairman of the CMPS Institute, in a press release.

The new law spells out guidelines that lenders must follow when making loans. A large portion of these guidelines are ones that mortgage lenders are already following. But Nicholas worries that now that the guidelines are law, there will be less wriggle room for lenders to make exceptions to strong loan candidates who have unusual situations.

The press release from the CMPS Institute uses the example of a business owner with a strong credit score of 750, a large amount of home equity and no history of late payments. This borrower might be denied a new mortgage loan if the borrower’s business had a bad year last year. That temporary drop in income, even if the business owner had plenty of money saved in the bank, could be enough to cause conventional lenders to turn the borrower down.

Nicholas’ big fear is that lenders will now always err on the side of extreme caution to stay on the good side of the law.

There has to be a happy medium here, though. Is there room for common sense in mortgage lending? Can lenders loan money to qualified candidates even if they do have some financial irregularities?

You’d think this would be possible.

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