New Mortgage Rules To Be Released


New mortgage rules are set to be released this week by the Consumer Financial Protection Bureau, which will restrict the kind of sub prime lending practices that cause both the housing and financial collapse in 2008.  Lenders are trying to find the happy medium between to strict and too lenient lending practices, and it is a fine line.  According to Richard Cordray, director of the CFPB, “We have a financial crisis and a lot of pain and misery in this country that was caused by reckless lending and toxic products that should never have been offered and that this rule will see are never offered again.”  He added, “We’ve gotten tens of thousands of mortgage complaints at this point. A big number of them are people who are in trouble now because of reckless lending practices that occurred before the crisis,”  It’s an interesting perspective when the lenders are called reckless but the people who accept loans they know they can never repay, are victims.  In response to the crisis the CFPB is recommending that the rules define what are called “qualified mortgages.” According to the NPR “These cap upfront fees at 3 percent of the loan amount, do not balloon over time and limit borrowers’ debt payments to less than 43 percent of their pretax income. In exchange, lenders that issue mortgages meeting those standards can reduce their legal liability.”  The result of the housing crisis of 2008, is that the pendulum swung the other way.  Banks have made it far more difficult to qualify for mortgages but according to Susan Wachter, a professor of real estate finance at The Wharton School of the University of Pennsylvania, that’s not be a bad thing.  “The new rules may mean some people will no longer be able to qualify for a mortgage, but those who do will have a much better chance of staying in their homes.”  This is a common sense approach but there will be those who claim it’s discriminatory and unfair.  But the requirement that Fannie Mae and Freddy Mac make loans to those financially unable to repay them, played a large role in the housing and financial crisis.  It’s not a popular point to make, but it is the truth.  The banking industry often talks about the CFPB and its efforts with fear and loathing, but Wachter says “the financial crisis demonstrated how all lenders suffer when there are lax lending standards.”  She therefore expects many lenders to throw their support behind these new rules.

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