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Updated:  1st Q 2018

According to Holden Lewis at, federal regulators have proposed new subprime lending guidelines. The hope is that these new rules will reduce the number of new loans going into foreclosure, over the coming years.

Included in the guidelines is a proposal requiring that borrowers qualify for their loans based on their ability to pay their loans once their interest rates reset.

Currently, borrowers can qualify for their for their loans based on “teaser rates”, interest rates that start out much lower, but ramp up quickly, after some preset period of time, from six-months to seven years.

The logic of such a rule is easy to understand. Should we be encouraging people to get into loans that they couldn’t afford today, just because they hope they’ll be able to afford the new, higher payments, sometime in the future?

Of course, a lot of these borrowers end up doing quite well, making their payments on-time. The quality of borrower over the past two years was the issue – too many people of questionable means borrowed but couldn’t make the higher payments, once their loans reset.

Many reasonable, intelligent people still want (and need) subprime loans. If we make new regulations too strict, it won’t help anyone.

More: Subprime guidelines – By Holden Lewis, Mortgage Matters,