Mortgage Standards Get Tighter

California was one of the states that saw a huge uprising of adjustable rate mortgages during the housing boom of 2003 and 2004. Many homeowners were approved to pay for the loan based on the low introductory rates that make the mortgages so appealing. The only problem is that after the fixed period ends, the rate goes higher and many borrowers cannot make the monthly payment.

Regulators now want mortgage lenders to qualify their clients based on the worse case rate, which would be the rate after the introductory period. This way, homeowners would not be given mortgage payments that they will not be able to afford in just a few years time. While most homeowners refinance their adjustable rate mortgages prior to the introductory period ending, other owners are not in a position to get out from under the loan before the rate goes up. As of October, federally charted loans are required to qualify homebuyers based on the full rate of a mortgage, not the lower introductory rate on the loan.