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Mortgage suitability takes center stage By Melissa Wirkus

In today’s day and age it is more important than ever for homeowners to take out mortgages that they fully understand and that are appropriate for their specific financial situation.
The soaring rate of foreclosures and delinquencies we have been seeing lately brings this issue even more to the forefront. More and more than ever before borrowers are getting into mortgages they cannot pay back, which is a problem for both the lenders who are giving the people the loans and to the consumers themselves who are borrowing more than they can really afford.
The problem has become so broad in scope that legislators across the country are working to address the problem.
A January 28, 2007 article by Kenneth Harney and posted in The San Francisco Chronicle, “Suitability is new hot word in mortgage market,” discusses how law-makers are looking to tighten the lending standards and prevent more people from getting into inapt loans.
“For the American mortgage market, it could be the hottest buzzword of the year: suitability. That's because Congress has a new top legislator for mortgage matters, Rep. Barney Frank, who believes that ‘you shouldn't lend (home buyers or refinancers) more than they can afford to pay back, and you don't lend them more than their house is worth.’”
This new focus on mortgage suitability is an important step in decreasing the amount of delinquencies and foreclosures that continue to increase. Frank is the new chairman of the House Financial Services Committee, which is the primary originator of any banking and mortgage legislation.
“In an interview, he made it clear that a top priority this year will be enactment of a nationwide lending-standards law designed to protect consumers from deceptive, unfair and predatory mortgage practices.”
Although most lenders are in the business to help people achieve their dreams, there are some “bad apples” that have helped to make this problem even worse by putting their borrowers in unsuitable loans. The industry as a whole must tighten their standards to eradicate this problem.
“Proponents of a suitability standard would require loan officers -- whether mortgage brokers or retail lenders -- to make certain that applicants are financially capable of handling a particular loan before and after payment increases, and that they fully understand the cons as well as the pros of the mortgage type they select.”
“‘It's nothing more than an appropriateness test,’ said John Taylor, chief executive of the National Community Reinvestment Coalition. ‘Lenders need to be absolutely certain that the loan they're putting somebody into really makes sense ... not just that it makes money for the lender or broker.’”

These new standards should help lenders put people into loans that are tailored to them and really fit their financial situation. Hopefully we will see the amount of foreclosures and delinquencies decrease in the near future.

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