New consumer-friendly mortgage rules went into effect today—Jan. 10—courtesy of the Consumer Financial Protection Bureau. These rules will give consumers buying a home or refinancing their mortgage new rights and greater protections.
The new rules aim to prevent reckless lending and other irresponsible underwriting practices. Such troubling tactics lead to a record number of foreclosures in recent years, with millions of Americans losing their homes. The rules call for:
More-responsible underwriting requirements. Lenders must evaluate borrowers on their ability to repay a mortgage loan before making it. This includes evaluating a borrower’s ability to repay a mortgage over the long term, beyond low “teaser” rates that might apply when a loan is initially made, and considering factors such as a borrower’s income, debts, assets, and credit history.
Qualified mortgages that are safer for borrowers. The CFPB rules detail a new class of “Qualified Mortgages” for which borrowers are presumed to be able to repay. Qualified Mortgages must be safer and easier to understand and are not allowed to include risky features such as negative amortization or interest-only payment provisions. The new rules limit the points and fees lenders can charge for Qualified Mortgages. For example, a loan over $100,000 cannot be a Qualified Mortgage if it has points and fees that are more than 3 percent of the loan amount.
Protections against mortgage steering. Brokers who assist borrowers in finding a mortgage are not allowed to steer them into a more costly loan just because it will mean a higher commission for them.
New mortgage servicing rules. The CFPB rules create a number of new standards mortgage lenders must abide by to protect borrowers from servicing abuses. State governments may take additional steps as they see fit. These include:
- Giving borrowers billing information in writing (written mortgage statement) with key details such as how much is owed, how much is applied to principal, interest, and escrow; payments made since the last statement; how previous payments were applied; contact information for the servicer; and late-payment information.
- Promptly crediting borrowers’ payments on the day they come in.
- Not charging borrowers for insurance they don’t need, or overcharging them for force-placed insurance.
- Quickly resolving complaints and sharing information.
- Working with borrowers who are having trouble paying their mortgage before starting or continuing foreclosure.
Consumers Union, the policy and advocacy arm of Consumer Reports, has supported the CFPB’s efforts to rein in abusive and predatory lending practices in the housing market. It’s important that the CFPB goes after some of the worst abuses in the mortgage market, and we urge them to keep the pressure on to ensure all mortgages offered to consumers are fair and appropriate.