The economy is rebounding but for the credit card holders, things may not be so bright in 2014 following the new reform act, which sets stiffer lending rules for mortgage loans. The laws are making it more difficult for mortgage loan applications to qualify for the loans. Nonetheless, consumers especially those with prime and sub prime scores will continue to enjoy better perks on reward cards.
For the subprime and those struggling with high interest rates, much more is expected. The qualities of the best credit card will comprise of multiple aspects including the package of perks, no annual fees rewards, and discounts with business affiliate partners, and reward bonus. Banks offering mortgage loans are going to make it stricter for borrowers to acquire the credit facilities.
If a borrower does get a mortgage, he or she will most probably qualify for a less than the expected amount. The Dodd-Frank Mortgage Reform act has set things to be strict, something that affects the borrower in a big way. The debt-to-income ratio is one thing, which is affected by the reform. The new lending rules limit consumers from taking mortgage or refinancing the existing one if it puts the overall household debt more than 43 percent of the household income.
The new debt cap also affects other common forms of debt, which are counted towards the total amount of debt including student loans and other fees. The law also makes rules tight especially on documentation, and for the lenders who try to give customers easy terms but the loan repayment go haywire leading to consumer lawsuits, they will also have to meet tight regulations.
For the consumer, the largest constraint is the 43 percent debt-to-income ratio threshold. The rules will make loans obscure for certain classes of consumers including those with prime or super prime scores. The change is aimed at protecting the consumer to avoid situations where things get too loose leading to problems in repayment of the loans. Banks may be reluctant to lend during the first months following the implementation of the law owing to the uncertainty over the process of implementing the rules.
The regulation on credit restrictions is aimed at cleaning the mess in debt problems, which arise due to loose lending structures compelling the borrowers to face lawsuits, which leave them subjected to foreclosures. However, the credit restriction comes at a time when consumers are actually doing a better job in terms of their debt management, and repaying their credit cards debts.
According to S&P/Experian, the monthly consumer credit measures indicates that the overall debt defaults have fallen to all time lows, which is a healthy credit environment. The result of the restrictions may be that it will be more expensive, and also hard to arrange loans for the consumers. This could lead to outright rejections for even qualified borrowers. And, with the interest rates on the rise, this aspect is likely to compound things for the borrowers and the lender alike.