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New federal mortgage rule aims to protect you from risky home loans

Consumer Reports News: January 10, 2013 05:23 PM

Today the Consumer Financial Protection Bureau issued a new "ability to pay" rule aimed at protecting you from risky home loans by requiring lenders to ensure you have the ability to repay your mortgage.

A key element of the housing crisis and meltdown was lenders making high-risk, and sometimes deceptively packaged, home loans without any real regard for whether borrowers would be able to repay them.

The new rule will take effect a year from now.

"In the run-up to the financial crisis, we had a housing market that was reckless about lending money," said CFPB Director Richard Cordray. "Lenders thought they could make money on a loan even if the consumer could not pay back that loan."

Among the features of the ability-to-repay rule:

  • Potential borrowers have to supply financial information, and lenders must verify it.
  • To qualify for a particular loan, you to have sufficient assets or income to pay back the loan.
  • Lenders will have to determine your ability to repay both the principal and the interest over the long term—not just during an introductory period when the rate may be lower.

Consumers Union, the advocacy and policy arm of Consumer Reports believes the new CFPB rule will help home owners avoid bad loans, but also believes that the CFPB should keep up pressure to ensure all mortgages are fair.

"While it's good that the CFPB is going after some of the worst abuses in the mortgage market, we urge them to keep the pressure on to ensure all mortgages offered to consumers are fair and appropriate," says Pamela Banks, senior policy counsel for Consumers Union.

For information on how to get a low-rate home mortgage read our report "How to overcome 7 barriers to qualifying for the best loans."

Assuring consumers have access to mortgages they can trust [CFPB]
CFPB mortgage rule will help consumers avoid bad loans; Bureau should keep up pressure to ensure all mortgages are fair, appropriate [Consumers Union]

Maggie Shader


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