In 2010 the government established the Consumer Financial Protection Bureau. It is this agency’s job to make sure that the consumer is protected as far as financial matters go. They have recently released a new list of mortgage rules that banks must now follow.
According to the New York Times, this is to start next January. With these new rules the Consumer Financial Protection Bureau wants to enforce qualified mortgages. This is meant to ensure the borrower can actually afford the loan. It will also protect the lending institution should the borrower default on the loan.
The new regulations say that the borrower must have an income and asset combination that is sufficient to pay back the loan. The goal with this is to make sure that before someone gets a loan that they are able to pay for it. If they are not able to pay back the loan, then the borrower will end up in over their head with debt, and no way to pay back the loan. This can really ruin the borrower’s credit score.
Another rule is regulating how much the monthly payment can be. The Consumer Financial Protection Bureau is limiting the monthly payment to be no more than forty-three percent of the borrower pre-tax income. This will help the consumer not have such a high payment every month that they cannot afford the other necessities that they need to purchase, or pay other bills that need paid.
Upfront fees are to be limited now. No longer can banks charge fee after fee after fee. Now they are limited on what they can charge for fees so that the consumer is not overwhelmed with paying for fees when getting a loan.
The Consumer Financial Protection Bureau is also eliminating interest-only payments. These types of payments can leave borrowers in much more debt. When the borrower is only paying on the interest, not the loan itself, they are not paying off the loan at all. Instead all the money goes to the interest, which will just come back as more interest that needs paid. It is a horrible cycle that too many people get into. With this type of payment being eliminated the borrower will be able to pay off the loan, not just pay on the interest.
The last rule that was added is the “ability to pay” rule. This makes the lending institution do some research and make sure that the borrower will be able to make the payments. Not just the upfront payments and fees, but all the payments after that. This will hopefully eliminate the amount of loans that end up in default.
With these new rules the Consumer Financial Protection Bureau is hoping to make getting a mortgage better for the borrower and the lender. Most of the rules protect the consumer from having to pay ridiculous fees, and only paying on interest. There are some meant to protect the lending institution as well, make sure that the borrower can afford to pay back the loan. All in all these new rules should make getting a mortgage better for the consumer, and lending the money better for the bank.
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