Consumer Finance Protection Bureau – Preview of New Home Lending Standards

Small Home in Boaco, Nicaragua.

As reported in the January 8, 2013 edition of The Wall Street Journal, the new federal Consumer Finance Protection Bureau is expected to issue new home-lending rules this week. The purpose of the new rules will be to prevent future real estate bubbles and outlaw the somewhat exotic loan products that some blame for the housing market bust. The new rules will be very controversial, as they will determine not only the types of loans that lenders will offer, but also to whom and on what terms. Since the housing market, which is a prime driver of the overall economy, is slowly beginning to turn around, most everyone is hoping the new rules are not too restrictive and that lenders have some protection from lawsuits and federal agency put-backs, provided they strictly adhere to the new rules.

 

One aspect of the Dodd-Frank financial regulatory overhaul of 2010 made banks legally responsible for determining whether a borrower has the ability to repay a mortgage. The new rules are expected to define how banks can legally satisfy that mandate. Some financial experts’ project that the new rules may lock in today’s tighter credit and income verification rules. If that occurs, those home buyers with uneven incomes and less than sterling credit scores will continue to have a very tough time securing a mortgage. Also, if the rules are not clearly defined, banks may become even more reluctant to making mortgage loans to less than optimal candidates. Such an outcome would only serve to stifle the housing market’s nascent turnaround.

 

We should know more about the new rules, in the near future.

Photo courtesy of Flickr.com and Lon&Queta’s Photostream

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