CFPB Unveils New Federal Rules to Curb Risky Mortgages


WASHINGTON -- Federal regulators for the first time are laying out rules aimed at ensuring that mortgage borrowers can afford to repay the loans they take out.

The rules being unveiled Thursday by the Consumer Financial Protection Bureau impose a range of obligations and restrictions on lenders, including bans on the risky "interest-only" and "no documentation" loans that helped inflate the housing bubble.

Lenders will be required to verify and inspect borrowers' financial records. The rules discourage them from saddling borrowers with total debt payments totaling more than 43 percent of the person's annual income. That includes existing debts like credit cards and student loans.

CFPB Director Richard Cordray, in remarks prepared for an event Thursday, called the rules "the true essence of 'responsible lending.'"

The rules, which take effect next year, aim to "make sure that people who work hard to buy their own home can be assured of not only greater consumer protections but also reasonable access to credit," he said.

Cordray noted that in years leading up to the 2008 financial crisis, consumers could easily obtain mortgages that they could not afford to repay. In contrast, in subsequent years banks tightened lending so much that few could qualify for a home loan.

The new rules seek out a middle ground by protecting consumers from bad loans while giving banks the legal assurances they need to increase lending, he said.

The mortgage-lending overhaul is a priority for the agency, which was created under the 2010 financial law known as the Dodd-Frank Act. The agency is charged with reducing the risk of a credit bubble by helping to ensure that borrowers are better informed and loans are more likely to be repaid.

The agency is charged with writing and enforcing rules that flesh out the law passed by Congress. Some provisions are required under the law, but the agency had broad discretion in designing many of the new requirements.

The rules limit features like teaser rates that adjust upwards and large "balloon payments" that must be made at the end of the loan period.

They include several exceptions aimed at ensuring a smooth phase-in and protecting access to credit for underserved groups. For example, the strict cap on how much debt consumers may take on will not apply immediately. Loans that meet separate federal standards also would be permitted for the first seven years.

Balloon payments would be allowed for certain small lenders that operate in rural or underserved communities, because other loans may not be available in those areas.

The bureau also proposed amendments that would exempt from the rules some loans made by community banks, credit unions and nonprofit lenders that work with low- and moderate-income consumers.


Daniel Wagner can be reached at

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Great, Really it is a best mortgage blog. Thanks for share this.

July 11 2013 at 4:54 PM Report abuse rate up rate down Reply

Everything Old, Is New Again! We had to save for years, so that the bank would give us a loan. We had to show that we had jobs and had been there for X number of years. Then the Highly Educated, Ivy League Types, decided that was no longer necessary and forced banks into giving loans to people, they knew could not pay them back. That was the modern day "Fairness Doctrine". Their bright ideas caused the housing bouble! Guess they were not so smart after all!!

January 13 2013 at 4:16 PM Report abuse +1 rate up rate down Reply

Amaxing we have to hold anyones hand and guide them thru basic life transactions. If you dont know if you can afford a hime .. you probably can't. You can GOOGle it and do the basic math

Of course if you dont know how to control spending or budget your money wont have the money to pay your mortgage.

Oh .. comments above also apply to the free spending liberals in office

January 11 2013 at 4:06 PM Report abuse rate up rate down Reply

What really needs to be changed is the 'out-of-state' investor programs, at this time in our history there are tens of thousands of otherwise good and habitable homes being 'kept off' of the market by 'speculators' that have 'Pending' or 'Contingent' offers on the properties, in the hopes that the prices will inflate, 'Balloon' again so that they can again play the 'flip-it' game that caused the Bush era destruction of the market and mortgage banking community..

The primary culprits are the British, Australians, and Canadians that have 'raided' the country's southern tier states from California to Florida, thus preventing AMERICANS from obtaining the properties, and giving the 'Banksters' and Real Estate Brokers a chance at more profits and thus, upping the GREED FACTOR.

January 10 2013 at 12:47 PM Report abuse rate up rate down Reply

One of the lenders advertising on this page is the highest priced lender among over a dozen that I have checked .

As for low income borrowers... Many are Seniors that have equity in existing homes, but want to 'downsize' or 'upgrade' to other property in areas of better weather, less crime, etc., and therefore, his or her loan is based on a FIXED INCOME of Social Security and maybe other retirement, that is affordable to the senior that has long ago learned to live on 'canned beans' and other lost cost items.

As for who caused the 'mortgage meltdown' it was NOT the poor or the seniors, it was the RICH and the GREEDY that Borrowed his or her way into bankruptcy.. This is public record..

Also, when one looks at a Percentage of Income, say 47% for a mortgage vs 53% for living on, consider the millionaire that can easily live on 53% of his or her income.. as can many of the upper middle-class.

January 10 2013 at 12:42 PM Report abuse +1 rate up rate down Reply

It use to be 28% and 36% of salary and total debts. Your right about the Bozo's in Wa though. As usual the author mentions the Dodd Frank act. They never mention these two Dancing Bozo's had oversight on Fannie and Freddie and Frank assure everyone that all was fine with those agenices two months before the bottom fell out.
Now Frank wants to be appointed to the Senate. If the govenor appoints him then Ma is dumber than I thought.

January 10 2013 at 11:51 AM Report abuse -2 rate up rate down Reply

So the rules don't apply to loan aplications submitted by low and moderate income applicants? Then, what's the point of having the rules? Don't those bozos in Washington understand that lots of the mortgage loans that went bad were made to low and moderate income applicants, probably the majority of the loans? I think those bozos in Washington are living in an Alice In Wonderland world, totally separate from reality!

January 10 2013 at 10:59 AM Report abuse rate up rate down Reply
2 replies to browse62's comment

My sentiments exactly, I was just getting ready to write your response. It popped out of the article like a sharp stick in the eye. Just went through a refi on an investment property and had to document everything but the kitchen sink.

January 10 2013 at 11:35 AM Report abuse -1 rate up rate down Reply
1 reply to garryangel's comment

Yep exactly what I saw too!!! I too refied a couple investment properties and biught another one recently. No problems, but had to submit over 200 pages of info and answer the dumbest questions I have heard in a long time.

January 10 2013 at 12:07 PM Report abuse rate up rate down

The majority of the loans that went bad were NOT from the poor, but from WORKERS that had good jobs, WORKERS that hit the age of 60 and were 'no longer acceptable to the work place - i.e., Corporate lords' and the upper middle to rich investors. The upper to middle class investors and the con-artist construction gurus did buy and sell (flips) until they got caught in their greed and got stuck with tens of thousands of properties that they no longer could afford.. GREED is GREED, and that is what caused the BUSH ERA DEPRESSION, from the RE salesperson to the CEO of the largest banks and everyone in between, the GREED took CONTROL, and destroyed the nation...

January 10 2013 at 12:53 PM Report abuse -1 rate up rate down Reply

Why would they set 43% of income as a limit for a mortgage, who can live on 57% of income to pay their remaining bills. Typical of our Congress & Senate, folks who cannot balanace our Federal budget.

January 10 2013 at 10:53 AM Report abuse -1 rate up rate down Reply
1 reply to luckycur's comment

Balance .... if I make $20,000 a year I will have trouble paying out 43% of my income on a mortgage, but if I make $200,000 or @2,000,000 a year I will easily be able to afford the 43%, as the 53% will more than enough pay for my car, food, insurance, etc.

January 10 2013 at 12:55 PM Report abuse -1 rate up rate down Reply

So our government is telling bankers how to lend and borrowers how much they can afford to borrrow. Can they make the same rules applicable to our Federal Government including the loan to value and debt to income ratios a mortgage lender requires? If they did, there would be a declining federal budget deficit and spending would be less than income with a specific paid in full date of the indebtedness.

January 10 2013 at 9:25 AM Report abuse +3 rate up rate down Reply
2 replies to cdsj's comment

Well - consider the typical amount borrowed is roughly between 2 and 3 times the gross income.

US Gross Debt is something around-just-under 15 trillion.

Gross Federal Tax income is 2.5 trillion. That comes to about 6:1. In other words, not sustainable without lots of ink, paper and the presses to use it on. Nor is spending less an option. Far too many sacred cows on the line.

January 10 2013 at 9:56 AM Report abuse +2 rate up rate down Reply

Something the Republican under Reagan and Bush forgot..

January 10 2013 at 12:56 PM Report abuse -1 rate up rate down Reply