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New Mortgage Rules Effective 2009

Home, sweet home.

Home, sweet home.

HARRISBURG PA – If a new home in Lower Pottsgrove (PA) Township – and its new mortgage – are in your future, you’ll likely be jumping through some new hoops before a lender awards your loan.

The Pennsylvania Banking Department last week (Dec. 22, 2008) announced new rules the mortgage industry must follow to ensure borrowers know what they’re getting into. The rules, which take effect March 20, 2009:

  • Restrict so-called “low-doc” and “no-doc” mortgages. Borrowers won’t be able to get a mortgage just by claiming they earn a certain amount each year, a practice that has been cited as a cause of the nation’s growing foreclosure problem. Mortgage applicants must provide documented proof of income, employment and other information.
  • Require lenders to provide clear, up-front terms on their loans. They must disclose in a one-page summary whether a loan has a variable interest rate, a prepayment penalty or a balloon (lump-sum) payment. It must show if property taxes and hazard insurance are included in a monthly payment, or if payments are set so low they do not cover the interest or principal of the loan. That last “if” is called negative amortization, another foreclosure cause.

The rules also contains changes regarding loan funding, payoff statements, advertising and advice to borrowers, but they take effect immediately.

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