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.http://www.nytimes.com/...
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.http://www.whitehouse.gov/...
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!