Set to take effect on January 10, 2014: a new rule forcing lenders to verify borrowers’ ability to repay mortgages by confirming their income and assets.
The rule, mandated by Congress in response to lax underwriting standards before the 2008 financial crisis, will also offer some legal protection for lenders who follow guidelines for so-called qualified mortgages, according to an e-mailed statement by the [U.S. Consumer Financial Protection Bureau]. The measure also insulates issuers of qualified mortgages at prime interest rates from future lawsuits.
For qualified mortgages, the borrower must have a debt-to-income ratio of 43 percent or less. Loans that do not meet that criterion but are eligible for purchase, guarantee or insurance by Fannie Mae or Freddie Mac, or are issued by some government agencies, will be considered qualified mortgages for as long as seven years.
Qualified mortgages must also limit points and fees to 3 percent of the total loan amount, according to the bureau. Features that proved highly risky during the housing bubble, such as negative amortization, interest-only payments and terms exceeding 30 years, [will also be] prohibited for qualified mortgages.
∙ Lender Review of Borrowers Tightened Under Mortgage Rules [Bloomberg]