LONGVIEW – The Consumer Financial Protection Bureau (CFPB) has issued new mortgage rules that are scheduled to take effect on January 10, 2014.
In 2008, the rise in home foreclosures was viewed by many as the result of substandard mortgage lending practices. Subsequently, Congress passed the Dodd-Frank Act in 2010, which created the CFPB and set forth a number of financial industry regulations aimed at protecting consumers, including some pertaining to mortgage lending. In January 2013, the CFPB issued mortgage rules that implement the mortgage provisions set forth by Congress under the act.
Highlights of the new mortgage rules
The new rules broaden coverage of existing ability-to-repay rules, which require a lender to make a reasonable, good faith determination that a consumer has the ability to repay a loan. The rules extend coverage of the ability-to-repay rules to the majority of closed-end transactions secured by a dwelling (with certain exceptions).
In addition, the rules set forth specific procedures a lender must follow when determining a borrower's ability to repay a loan, including the consideration and verification of certain consumer information (e.g., income, employment status) and the calculation of the borrower's monthly mortgage payment.
The rules also center on what are referred to as Qualified Mortgages. According to the Dodd-Frank Act, lenders that issue Qualified Mortgages will receive a presumption of compliance with ability-to-repay rules, thereby reducing their risk of challenge from a borrower for failing to satisfy ability-to-repay requirements.
The rules specify various requirements that a loan must meet in order for it to be considered a Qualified Mortgage, including:
What do the new rules mean for consumers?
The new mortgage rules were mainly put into place as a way to end irresponsible mortgage lending and ensure that borrowers will only be able to obtain a mortgage loan that they can afford to pay back. Proponents view the rules as welcome industry safeguards that simply mirror responsible mortgage lending practices that are already in place.
However, some mortgage-industry experts fear that the new rules may end up making obtaining a mortgage loan more difficult than it has been in the past – especially for borrowers who have a high debt-to-income ratio. Borrowers may also find themselves burdened with the task of providing lenders with additional documentation that they may not have had to do in the past. For more information on the new mortgage rules, you can visit the CFPB website at www.consumerfinance.gov.
Bryant Wealth Management, Inc. is a Washington USA small business corporation providing fee-only financial planning services for individuals, families and small organizations. The information presented here is not specific to anyone's personal finances. We issue this impersonal advice for educational purposes based upon publicly available information from sources believed to be reliable. However, we cannot assure the accuracy or completeness of this information as it may change at any time and without notice. For personal advisory services customized to your unique situation connect with Chris@BryantWealthManagement.com.
Chris Bryant, Ph.D., MBA, RFC® is the founder, Chairman, & CEO of Bryant Wealth Management, Inc. Dr. Bryant is the author of 7-Steps to Financial Success and the Personal Financial Planning course. He provides advisory services for his private client group while engaging in a limited number of public speaking events each year. Dr. Bryant's work helps people enjoy life, achieve goals, and leave a legacy.
Chris Bryant is an American financial advisor.