Just another bureacratic 'feel good' measure the Feds are putting in place to 'protect' the consumer, however, the unintended consequences of this measure will result in even tighter credit criteria, fewer loans granted to well qualified borrowers, and higher cost passed down to the consumer as lenders become subject to higher loan recourse liability.
WSJ, January 10th, 2013
New mortgage rules set to be unveiled Thursday by the Consumer Financial Protection Bureau will spell out how lenders must ensure that borrowers can repay their home loans.
The rules, which go into effect next January, were designed to enhance consumer safety without tightening credit standards beyond current levels, officials said Wednesday.
The 2010 Dodd-Frank financial-regulation overhaul changed lending rules to make banks legally responsible for determining that a borrower is able to repay a mortgage. The CFPB's rules are intended to implement that change. The upshot is that banks are likely to narrow their loan offerings and rely more on the 30-year, fixed-rate mortgage, a product unique to the U.S. and one that has required a government guarantee.
Many lenders had expressed concerns that the ability-to-repay mandate would create open-ended legal liability that would lead to more-stringent lending standards. But regulators, sharing those concerns, said they opted for rules that wouldn't significantly restrict credit.
The rules could, however, prompt lenders to impose tighter standards for parts of the market, particularly "jumbo" mortgages that are too large for government backing.
Richard Cordray, the CFPB's director, is to announce the rules at a hearing in Baltimore on Thursday. In remarks distributed to reporters, he said the new rules could have averted the financial crisis. "I firmly believe that if the ability-to-repay rule we are announcing today existed a decade ago, many people…could have been spared the anguish of losing their homes and having their credit destroyed," he said.
In his remarks, Mr. Cordray also referred to borrowers who have been turned down for loans despite having strong credit and substantial down payments. "The slowdown in the mortgage market is holding back consumers," he said.
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