The CFPB or the Consumer Financial Protection Bureau has decided that it will announce the new mortgage lending rules. The main aim to announce these new mortgage lending rules is to give a boost to the mortgage market. According to them, it will be a middle path between no-documentation loans and the current, restrictive environment.
Ability to repay rule:
The qualified mortgages will be embraced by the lenders as they will have a better chance of protecting themselves from lawsuits from borrowers whose loans have gone bad. The ability to repay rule follows the 2010 Dodd-Frank legislation. Apart from that, officials at the Consumer Protection Bureau are of the opinion that the present lending standards are not much different from what has prescribed in the new mortgage lending rule. However, it is a fact that the new mortgage lending rules will definitely clear the scope of regulations for the lenders but it might create anxiety for consumers who want to get a mortgage.
Establishing a temporary category of qualified mortgages:
In order to recover the mortgage market and help consumers who don't meet the 43% debt to income ratio threshold, a second, temporary category of qualified mortgages will be established that meet most of the new guidelines and will also qualify to be purchased, guaranteed or insured by Fannie Mae, Freddie Mac or various other federal agencies. This temporary provision will end with the issue of their own qualified mortgage guidelines.
Determining borrower's ability to repay:
Eight factors have been listed in order to determine the borrower's ability to repay the mortgage:
• Current income and assets
• Credit history
• Employment status
• Monthly mortgage payment
• Other loan payments related to the property
• Payment for property taxes
• Other debt obligations
• Monthly debt-to-income ratio
What the new mortgage lending rules won't allow:
As per the new rules, these things won’t be allowed:
• No interest-only mortgages
• No loans where the principal due increases over time
• No loans that carry a balloon payment
• No loan terms of more than 30 years
• No teaser interest rates to judge a borrower's creditworthiness.
Apart from this, the prospective borrowers may not qualify for a mortgage unless their total debts consist of no more than 43% of their monthly gross income. In addition to the other rules defining a qualified mortgage, it has also been said that a qualified loan cannot charge more than 3%, in points and fees, of the total loan amount.