“The federal Consumer Financial Protection Bureau (CFPB) announced today the adoption of new rules for mortgage lenders that prohibit deceptive teaser rates or no-documentation from borrowers, as well as requirements that lenders make a better effort to determine a borrower’s ability to repay the loan.
The CFPB’s director said:
When consumers sit down at the closing table, they shouldn’t be set up to fail with mortgages they can’t afford. Our Ability-to-Repay rule protects borrowers from the kinds of risky lending practices that resulted in so many families losing their homes. This common-sense rule ensures responsible borrowers get responsible loans.
The ability to pay rules require that lenders document a borrower’s financial information, evaluate and decide that the borrower can repay, and not base the ability to repay on a teaser rate.
A second set of rules applies to qualified mortgages. Lenders may still make loans to consumers with “insufficient or weak credit history”, but those will carry higher interest rates and the lender will be presumed to have assured itself that the borrower can repay the loan. Borrowers may challenge that presumption if they can prove that they did not have sufficient income to repay the mortgage. In general, a qualified mortgage will be available to borrowers whose debt-to-income ratio is less than or equal to 43%….”