Remember the CFPB?
It’s the Consumer Financial Protection Bureau, a government agency established in 2010 to prevent risky mortgage practices and stop banks from issuing misleading credit card forms, among other things.
Now, the CFPB is back in the news with a series of new regulations meant to protect consumers from the kind of unsustainable mortgage practices that contributed to the recession. The New York Times reports that, effective next January, the CFPB will be enforcing “qualified mortgages, meant to ensure that the borrower can afford the loan he or she takes on, and to protect the lending bank if the borrower defaults.”
To get a qualified mortgage, the following regulations will be in place:
- Borrowers have an income and assets sufficient to pay the mortgage
- The monthly payment for a loan may not exceed 43% of a borrower’s monthly pre-tax income.
- Upfront points and fees will be limited
- Interest-only payments (which leave borrowers with too much in loans) will be eliminated
- An “ability to repay” rule, which will require lenders research whether a buyer can consistently pay not just the introductory rate, but the standard rates that kick in afterward
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Banks won’t be obligated to issue only qualified mortgages, but it’s expected that the protections offered along with them–from most borrower lawsuits, specifically–will be a big incentive.
The stricter regulations will potentially limit the number of people who qualify for mortgages. But the new regulations will build in a seven-year buffer, in order to give the real estate market a chance to recover. During this time, some borrowers who meet the income and credit requirements, but have more debt than is allowed, may qualify for these mortgages.
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After announcing these rules, the CFPB will have a “comment period” for feedback; the agency is expected to reveal more rules later this month.
Update, January 11: This article has been corrected to clarify the fact that the monthly payment for loans may not exceed 43% of a borrower’s monthly pre-tax income.