The Consumer Financial Protection Bureau (CFPB) has recently issued new Mortgage rules. These rules cover a lot of territory, but the part of the 804 page document discussing changes to borrower affordability is generating the most attention.
The focus on affordability is due to the recent housing bubble – or the period of self-reinforcing increase in home prices. This led to poorly enforced rules that allowed lenders to award loans to individuals who were unable to afford them leading to a burst in early 2007.
In response to the real estate bust and credit crisis led to the Dodd-Frank bill passing into law in 2010 some see this law as a knee jerk response that ordered the CFPB to define “qualified mortgages” or mortgages that lenders can award with minimal risk and these rules are to go into effect on Jan 10 2014.
These new rules have declared that qualified loans can no longer include any of the following::
· interest-only;
· balloon payment;
· negative amortization;
· term exceeding 30 years;
· zero documentation;
· lender fees exceeding 3 percent of the loan amount (unless that amount is less than $100,000); or low "teaser" rate on an adjustable-rate mortgage (ARM)
There are few loans being issued today that include any of these listed loan options and these new rules should help alleviate some of the excessive stringency in the current market.
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