The mortgage industry is constantly changing, affecting the housing market in many ways. Recently, the Federal Reserve proposed a new change requiring banks to ensure borrowers can repay their mortgages before they give them a loan.
In an article published by RISMEDIA called Fed Proposes Mortgage Standard Rules on April 21, 2001, it states:
“The rule is required by the Dodd-Frank Act, and it seeks to establish minimum mortgage underwriting standards, where borrowers could sue lenders if an appropriate effort isn’t taken to ensure they can repay the loan.
The provision allows lenders to make a “qualified mortgage,” a loan that meets certain standards that allow it to escape the liability associated with the provision.”
This article also states this proposal is in response to an explosion of “liar loans” that lenders offered in the years leading up to the financial crisis. This includes “stated income” where borrowers could state their income without verifying they could afford the loan, which led to a wave of foreclosures contributing to this crisis.
Another type of qualified mortgage outlined in the proposal gives lenders protection from borrower suits if the loan doesn’t have certain features such as negative amortization, which is where the loan balance increases because payments are made that fail to cover the interest due.
The Fed is soliciting comments on the proposal until July 22, 2011.
The Dodd-Frank Act requires the creation of the bureau, which will write rules for mortgages and other consumer credit products. The Consumer Financial Protection Bureau (CFPB) is set to take over enforcement of consumer protection laws on July 21, 2011.
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