As we fall into a new year, the real estate industry continues to remain- unrecovered. We have yet to assume what this new economic year will bring to the sadly faltering housing market, the residential lending arena and mortgage interest rates. One thing we can be sure of is that reform is not over yet.

So far, this year four major changes are being introduced in the mortgage industry.  This post provides a brief outline of each with a promise of more details as they are provided to the industry.

1.    FICO scores will have a greater affect on the consumer’s ability to borrow money and mortgage interest rates they are offered. FNMA and Freddie Mac have both increased the eligible FICO score levels and yes, it affects even the most pristine credit scores. The lower the FICO score, the lower the loan to value and higher the interest rate.

2.    A new mortgage disclosure must be provided to the consumer explaining their credit score and how the lender made a decision on their loan and interest rate. This analysis is an extra step the lenders must go through, and yes, there is another charge for this. The form is a two page letter and explanation of your credit score.

3.    The Mortgage Disclosure Improvement Act of 2008 amended the Truth in Lending Act and required the old Truth in Lending Form to be revised. There are now some pretty charts and tables to look at and a statement from the lender advising the borrower that they might not be able to refinance the mortgage again.  The most confusing form included in the mortgage loan application now got longer and more confusing.  Yeah, good luck with that one.

4.    What will prove to be the most important change this year is the way in which mortgage loan officers earn commission on your loan. This reform is not completed yet and does not go into effect until April 1, but it will be a game changer. The gist is that mortgage loan officers will be required to lock in their commission structure with the lenders they do business with, they will have to give the consumer a choice on whether they [consumer] want to pay the commission (points) and fees or have the bank pay everything and also offer at least three choices of mortgage products at the time of application. Again, not completed as of this writing, it will be the cause of the latest exodus from the mortgage industry and may have a negative effect on the housing industry.  More to follow.

This year will surely be a tell tale sign for both the future of the economy and the real estate industry. As we continue to over regulate and over disclosure, we can only hope that the market remains sideways until real estate has got its game back.