Why The Cost Of Your Mortgage And Car Loan May Be Headed Higher

NEW YORK (CBS 2) -- The nation's financial regulators are looking to prevent another housing boom and bust by encouraging safer home loan lending and borrowing practices. They're proposing changes in the way home loans are sold to investors, Jill Schlesinger, editor-at-large of CBS MoneyWatch reports.

Under financial reform, if lenders want to package loans to investors, they must keep five percent of the loan. The regulators figure that banks will be less likely to make bad loans if they have skin in the game.

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The new proposal allows a work-around to that five percent rule. As long as the banks comply with some rules, they may keep less than five percent.

Among the rules, banks must be lending to people financing only their primary residences. Borrowers can only have 20 percent down for a new mortgage, 25 percent down for refinance, and 30 percent down if they want to take cash out during a refinance.

Borrowers also have to make sure housing costs are less than 28 percent of pre-tax income, and keep their total debt costs less than 36 percent of their pre-tax income.

It could be harder to get loans if you don't meet requirements, and rates on loans where you don't have 20 percent down, or loans for second homes, could rise.

Also, the new rules could slow down the already sluggish housing market.

There's a 60-day comment period, during which the banking and real estate industries will fight to water down the proposal.