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New Rules Aim To Shield Consumers, Mortgage Lenders



Lenders will be required to verify and inspect borrowers’ financial records. They generally will be prohibited from saddling borrowers with loan payments totaling 43 percent of the person’s annual income.

Federal regulators for the first time are laying out rules designed to ensure that mortgage borrowers can afford to repay the loans they take out.

The ‘Ability-to-Repay’ rules being unveiled Thursday by the Consumer Financial Protection Bureau impose a range of obligations and restrictions on lenders, including bans on the risky “interest-only” and “no documentation” loans that helped inflate the housing bubble.

Lenders will be required to verify and inspect borrowers’ financial records. They generally will be prohibited from saddling borrowers with loan payments totaling 43 percent of the person’s annual income.

Leading up to the mortgage crisis, certain lenders originated mortgages to consumers without considering their ability to repay the loans. The gradual deterioration in underwriting standards led to dramatic increases in mortgage delinquencies and rates of foreclosures. What followed was the collapse of the housing market in 2008 and the subsequent financial crisis. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act created broad-based changes to how creditors make loans and included new ability-to-repay requirements, which the CFPB is charged with implementing.

CFPB Director Richard Cordray, in remarks prepared for an event Thursday, called the rules “the true essence of ‘responsible lending.”‘

The rules, which take effect next year, aim to “make sure that people who work hard to buy their own home can be assured of not only greater consumer protections but also reasonable access to credit,” he said.

The rules, in various forms, have been in the works for years. Other agencies continue to formulate their own rules, and one still in development about what constitutes a qualified residential mortgage might increase a consumer’s mortgage down payment in order to ensure that borrowers have more “skin in the game.”

 

 

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  • Oregon home loan lenders

    I think this rules will surely protect the consumers from mortgage. I have seen many times times that lenders charge high interest for the loan against consumers & consumers is in high debt. This new rules will definitely act as shield to the consumers.