May 27, 2018

CFPB Unveils Sweeping Changes to Mortgage Rules

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CFPB Unveils Sweeping Changes to Mortgage Rules

The Consumer Financial Protection Bureau unveiled new mortgage rules Thursday that are expected to change how home buyers go about getting approved for a home loan. 

Loans that meet the agency’s new lending criteria now will be called a “qualified mortgage.” Every company that issues mortgages will be required to follow the new guidelines in order to receive protection from lawsuits filed by troubled borrowers or buyers of mortgage-backed bonds. Some types of loans will be excluded from these rules, such as interest-only mortgages and loans on which the principal balance rises over time.

A “qualified mortgage” will consist of the following:

  • Lenders must prove that income and assets are sufficient to repay the loan (this applies to jumbo loans as well).
  • Borrowers must be able to document their jobs.
  • Credit scores will have to meet a minimum standard.
  • Borrowers will have to be able to show that they can also still afford other debts associated with the home, such as home equity loans as well as property taxes.
  • Lenders will consider borrower’s other debts before issuing a mortgage too, such as student loans, car loans, and credit card debt.
  • Monthly payments must be affordable to the borrower.

Home buyers who fail to qualify for a “qualified mortgage” can still get a mortgage, but mortgage payments must not be more than 43 percent of the borrower’s pre-tax income. 

Also, the CFPB plans to make some borrowers exempt from the new rules, such as applicants looking to refinance out of  subprime adjustable-rate mortgages or some mortgages issued by non-profits that target low-income home buyers.

The new rules will take effect Jan. 21. Lenders have a year to fully implement these rules. 

Source: “New Rules Aim to Make Mortgages Safer,” CNNMoney (Jan. 10. 2013)