Skip to main content

From The New York Times:

WASHINGTON — Banks and other lenders will be prohibited from making home loans that offer deceptive teaser rates or require no documentation from borrowers, and will be required to take more steps to ensure that borrowers can repay, under new consumer protections to be announced on Thursday.

The rules, being laid out by the Consumer Financial Protection Bureau and taking effect next January, will also set some limits on interest-only packages or negative-amortization loans, where the balance due grows over time. Banks can make such loans, but the new rules would not protect them from potential borrower lawsuits if they do so.

And mortgage originators will in most cases be restricted from charging excessive upfront points and fees, from making loans with balloon payments and from making loans that load a borrower with total payments exceeding 43 percent of income.

From Richard Cordray, head of the CFPB:

Today, we’re issuing one of our most important rules to date, the Ability-to-Repay rule. It’s designed to assure the reliability of mortgages – making sure that lenders offer mortgages that consumers can actually afford to pay back. This is a simple, obvious principle that needs to be cemented in the housing market.


Among the features of our new Ability-to-Repay rule:

Potential borrowers have to supply financial information, and lenders must verify it;

To qualify for a particular loan, a consumer has to have sufficient assets or income to pay back the loan;

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.


In the wake of the financial crisis, credit is achingly tight. Interest rates are low, but it is hard to qualify for a home mortgage. As the American mortgage market ebbs and flows, we have the duty to protect responsible lending in the housing market for borrowers, lenders, and everyone else who is engaged in the economic life of our country. We have been working hard, and we will continue to work hard, to do just that.

Consumers should be able to trust the American dream of homeownership without worrying about losing the roofs over their heads and the shirts off their backs. The Ability-to-Repay rule will help ensure that lenders and consumers share the same basic financial
incentives – that both of them win when borrowers can afford their loans. With this confidence, consumers can be active participants in the market and choose which of a wide variety of products they believe is best for them.

According to the New York Times, most mortgage bankers favor the new rule. Imagine the kind of scuzzball that would come out against it!

Your Email has been sent.
You must add at least one tag to this diary before publishing it.

Add keywords that describe this diary. Separate multiple keywords with commas.
Tagging tips - Search For Tags - Browse For Tags


More Tagging tips:

A tag is a way to search for this diary. If someone is searching for "Barack Obama," is this a diary they'd be trying to find?

Use a person's full name, without any title. Senator Obama may become President Obama, and Michelle Obama might run for office.

If your diary covers an election or elected official, use election tags, which are generally the state abbreviation followed by the office. CA-01 is the first district House seat. CA-Sen covers both senate races. NY-GOV covers the New York governor's race.

Tags do not compound: that is, "education reform" is a completely different tag from "education". A tag like "reform" alone is probably not meaningful.

Consider if one or more of these tags fits your diary: Civil Rights, Community, Congress, Culture, Economy, Education, Elections, Energy, Environment, Health Care, International, Labor, Law, Media, Meta, National Security, Science, Transportation, or White House. If your diary is specific to a state, consider adding the state (California, Texas, etc). Keep in mind, though, that there are many wonderful and important diaries that don't fit in any of these tags. Don't worry if yours doesn't.

You can add a private note to this diary when hotlisting it:
Are you sure you want to remove this diary from your hotlist?
Are you sure you want to remove your recommendation? You can only recommend a diary once, so you will not be able to re-recommend it afterwards.
Rescue this diary, and add a note:
Are you sure you want to remove this diary from Rescue?
Choose where to republish this diary. The diary will be added to the queue for that group. Publish it from the queue to make it appear.

You must be a member of a group to use this feature.

Add a quick update to your diary without changing the diary itself:
Are you sure you want to remove this diary?
(The diary will be removed from the site and returned to your drafts for further editing.)
(The diary will be removed.)
Are you sure you want to save these changes to the published diary?

Comment Preferences

  •  But, but..this new regulation that inhibits the (4+ / 0-)

    ability of banks to come up with "creative" financing instruments will kill jobs!

    A society grows great when old men plant trees in whose shade they know they shall never sit. - Greek proverb

    by marleycat on Thu Jan 10, 2013 at 11:14:58 AM PST

    •  Only the jobs of unscrupulous loan agents (5+ / 0-)

      Unfortunately it won't cost a single CEO their job. Grr..

      Still, it's a good rule and shows again why the Republican fought tooth and nail against the CFPB being created.

      What's wrong with America? I'll tell you. Everything Romney said was pre-chewed wads of cud from Republicans from the last 30 years and yet he managed thru a combination of racism and selling the (false) hope of riches to get 47% of the national vote.

      by ontheleftcoast on Thu Jan 10, 2013 at 11:32:18 AM PST

      [ Parent ]

  •  Some good practices (1+ / 0-)
    Recommended by:

    Of course, it will make home mortgages more difficult to come by for what used to be termed "subprime borrowers."

  •  Community banks are gonna hate this. (2+ / 0-)
    Recommended by:
    ericlewis0, nextstep

    Complicated as fuck and no bright line safe harbors.  And they don't have the inside information and giant legal departments that the big boys do.  

    Well, if the point is to consolidate banks and drive small community banks out of business, I'd say this is a good move.

  •  I can't refinance due to this stupid rule (3+ / 0-)
    Recommended by:
    ericlewis0, stormicats, Creosote

    I know it's well-intentioned. But here's what my bank has told me -- several different loan officers: Because of this regulation, the ONLY thing they can look at is my debt-to-income ratio. (And they won't count my income at all, because it's adjunct teaching, freelance writing, and other stuff that isn't a guaranteed paycheck.) They can't look at the fact that I've been paying them, at the higher rate / higher monthly payment, by autopay, for more than six years. They can't look at my credit rating. They can't look at whether I have enough money socked away to repay the mortgage three times over. (One would think that would influence "Ability to Repay," but no, it doesn't count.) None of that counts at all, because I don't have enough solid guaranteed income per month to meet the 43% ratio.

    So I'm stuck paying higher payments at a higher interest rate, making the mortgage LESS affordable than it would be if I could refinance.

    I realize the regulations don't prohibit the bank from looking at other things -- but if they do, and the loan goes bad, the government and I can sue them for exercising bad judgment. So naturally, they are not interested in going there. They will only issue "qualified" loans that satisfy the rule.

    The law of unintended consequences strikes again. And a lot of people other than myself are going to have no chance of refinancing or purchasing a house.

    •  Well, time to educate Richard Cordray (0+ / 0-)

      with a cc: to Elizabeth Warren. Why the assumption that if you are not a salaried job prisoner you are not legally and financially viable?

      What an insulting and exasperating situation!

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site