CFPB releases new mortgage rules in bid to reduce risky lending
The government is establishing new rules for
mortgages that will make it harder for some borrowers to qualify but that are
designed to prevent the kind of risky lending that nearly caused the housing market to collapse during the financial crisis.
The Consumer Financial Protection Bureau on Thursday will roll
out the first of several far-reaching changes to the nation’s mortgage market,
limiting upfront fees and curtailing practices such as interest-only payments
that can leave homeowners stuck with unsustainable loans. The agency also will
set standards for how much income a consumer must have to obtain a mortgage.
This marks the first time the government has spelled out what constitutes a
“qualified mortgage,” an effort to prevent the widespread toxic loans that hurt
millions of Americans during the housing crisis.
Banks that offer qualified mortgages will be protected from lawsuits if they
adhere to the criteria. The consumer agency hopes that will drive the entire
industry to live by the tighter standards that have taken hold since the crisis,
ensuring safer loans but potentially limiting the number of people who can
qualify to buy a home.
“Credit is going to be restricted, at least a little,” said Cristian deRitis, a senior director at Moody’s Analytics.
“The debt-to-income cap, for instance, is going to affect some folks at the
lower end of the income scale.”
To obtain a qualified mortgage, a borrower cannot have a debt burden that
amounts to more than 43 percent of income. That may make it more difficult for
people with lower incomes to qualify. In real estate markets such as Washington,
where prices are high, prospective buyers could run up against the cap as they
stretch their finances to purchase homes.
The rules will build in some exceptions to the cap for the next seven years
so the real estate market nationwide has a chance to heal, officials said.
During that period, people with higher incomes and top credit ratings could get
qualified mortgages even if the loan brings total debt above 43 percent of
The agency estimates that about three-quarters of the mortgages issued in
2011 met the debt-ratio limit and the other standards for qualified loans. An
additional 20 percent of loans that year were above the debt-to-income ratio but
met the other criteria. Such loans could potentially still qualify under the
That exception could be key in allowing marginally qualified borrowers to
meet the tighter guidelines, said David
Stevens, chief executive of the Mortgage Bankers Association.
But considering how conservative lending standards have become, Stevens said,
he suspects that the new rules will do nothing to extend lending to a broader
swath of borrowers.
Lenders are under no obligation to issue only qualified mortgages; they just
have to verify that borrowers have the ability to make their loan payments.
There is little doubt, however, that banks, which have doled out billions in the
past year to settle lawsuits related to mortgage abuses, will be lured by the
protections afforded under the new loan category.