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CFPB issues new safe lending rules

Posted on Thursday, January 10, 2013 at 5:02:54 PM

Leading up to the housing market collapse, numerous borrowers took on mortgages they couldn't realistically afford. In an effort to curb this practice, one government agency announced it adopted new rules that prevent financial institutions from engaging in risky lending.

The Consumer Finance Protection Bureau announced lenders will now be required to examine and verify a borrower's finances before they grant them a home loan. In addition, all consumers must meet a certain debt-to-income ratio, otherwise it will be considered illegal to give them lending money.

"When consumers sit down at the closing table, they shouldn’t be set up to fail with mortgages they can’t afford," said CFPB director Richard Cordray. "Our Ability-to-Repay rule protects borrowers from the kinds of risky lending practices that resulted in so many families losing their homes."

Further, financial institutions can no longer offer teaser rates. This practice involves a bank advertising a mortgage with certain interest rates to hook borrowers, only to increase them significantly once a consumers is well into the origination process.

With these new rules in place, the mortgage industry is expected to be much safer for consumers in the future.ADNFCR-16001052-ID-800943334-ADNFCR