New Hampshire Mortgage Guidelines Gain Support From Regulators
The New Hampshire Banking Department has adopted new federal guidelines to guard against negative amortization loans, also called “exotic” or “non-traditional” mortgages.
The Manchester Union-Leader reports that the department announced its intent to implement the guidelines Monday to ensure that buyers are only given home loans that are appropriate and that they had the risks fully disclosed.
Banking Commissioner Peter Hildreth said the guidelines aren’t specific because each type of mortgage loan is unique, as is each borrower who comes looking for one.
For the institutions regulated by the state, the state banking commission goes in every 18 months and examines the types of loans made. And the commission investigates consumer complaints as they are filed.
“These guidelines already apply to all banks and this extends them to mortgage companies,” Hildreth said.
These non-traditional mortgage loans often involve an introductory period in which none of the payment goes to the principal and only part of the interest, leaving the remainder of the interest to be added onto the principal, he said. After the period is over, the payment can skyrocket.
“This is not saying you can’t make those loans, just that you need to make sure you disclose in clear terms explaining things like the rate shock that often comes at the end of the introductory period,” Hildreth said.
He said there is no way to measure how much of a problem the loans are in the New Hampshire housing market, which is growing faster than other parts of New England.
Every bank and lender will be bound by the guidelines, but some subsidiaries of large national banks say they are not regulated by states, but by federal rules.
Hildreth said the U.S. Supreme Court will decide whether it is the state or the federal government that regulates mortgage company subsidiaries of national banks in a case to be heard next month.
The New Hampshire Housing Finance Authority in Bedford, N.H., worries that too many companies have been approving inappropriately large mortgages to buyers, while reducing monthly payments and up-front mortgage rates to make them seem affordable.
The structure of a traditional loan is designed to ensure that a buyer can pay accumulating interest as well as a part of the principal loan each month, said Robert Fleury of the New Hampshire banking department.
Mortgage companies have been approving large loans to buyers who sometimes cannot afford them, and reducing monthly payments that do not entirely cover the cost of accumulating interest. The unpaid interest is added to the principal and interest builds on this reassessed principal, compounding the long-term debt.
NHHFA developed pre- and post-purchase counseling services earlier this year for buyers who are struggling with “non-traditional” mortgages.