CFPB Unveils New Mortgage Rules to Protect Borrowers
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Digital Vision/Thinkstock(WASHINGTON) — The Consumer Financial Protection Bureau (CFPB) announced on Thursday new rules for mortgages designed to protect consumers and banks from the kind of lending that contributed to the 2008 housing collapse.
The new rules, which will go into effect next year, say people who want to buy houses have to prove they have the ability to repay their mortgages, providing complete financial information banks can verify.
“Lenders must look at a consumer’s financial information” and “evaluate and conclude that the borrower can repay the loan,” the CFPB said in a statement.
“Lenders can’t base their evaluation of a consumer’s ability to repay on teaser rates. Lenders will have to determine the consumer’s ability to repay both the principal and the interest over the long term — not just during an introductory period when the rate may be lower,” the agency added.
Lenders will have to offer loans that don’t trap home buyers. That means no more excessive points and fees, and no more “toxic” loan features like interest-only payments or negative-amortization payments that drive up the principal amount.
How much of a borrower’s income can go towards paying a mortgage will also be taken into consideration.
“Qualified Mortgages generally will be provided to people who have debt-to-income ratios less than or equal to 43 percent. This requirement helps ensure consumers are only getting what they can likely afford,” the CFPB said.
The agency says under these rules borrowers won’t be set up to fail and banks will be protected against lawsuits over bad lending practices.
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