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Here’s what the new mortgage rules mean for you

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It’s simple. Our new mortgage rules mean you will have more information and more protection when you’re shopping for a loan and while you own your home.

In the run-up to the housing crisis, some lenders made loans without checking a borrower’s income, assets, or debts. That turned out to be a pretty bad idea. And, when many borrowers couldn’t repay their loans, the economy was hurt badly.

Our new mortgage rules help change that. They’ll help protect you by requiring your lender to make a “good-faith, reasonable effort” to determine that you are likely to be able to repay your loan. That means the lender will check and verify your income, assets, debts, credit history, and other important financial information. And no more qualifying you based only on those initial “teaser” rates that trapped some consumers.

More protections
Lenders who meet certain requirements for what we call Qualified Mortgages–or QMs– are presumed to have made that good-faith, reasonable effort to check your ability to repay. QMs have several characteristics that protect consumers. First, QMs can’t have risky features like negative amortization or no-interest periods. Second, QMs are available with some exceptions to borrowers who have a monthly debt-to-income ratio of 43 percent or less, meaning that the total of their monthly mortgage payment, plus other fixed debts like car loans, is not more than 43 percent of their monthly gross income. Most people taking out a mortgage now have a debt-to-income ratio of around 38 percent.

You’ll also have less to worry about when you hire someone to help you find a mortgage. Loan officers and mortgage brokers have to follow rules to protect you from certain conflicts of interest. That means anyone you pay to help you find a mortgage generally can’t also be paid by someone else. And your loan officer or mortgage broker can’t get paid more to put you into a loan that has a higher interest rate.

More information
The new rules empower you to get important information about your mortgage. You’ll get a new periodic mortgage statement or coupon book that gives you important information about your monthly payment in one place. If you have questions about your mortgage or you think your servicer has made a mistake, the servicer is required to respond to your written inquiries quickly.

If your financial situation changes and you are having trouble making your mortgage payments, servicers now have to reach out under certain circumstances and send written information describing how you can apply for the options available to avoid foreclosure. During the housing crisis, mortgage servicers were often ill-prepared to help borrowers in trouble. Important paperwork was often lost and borrowers were frustrated by servicers who couldn’t give them accurate information about their options for avoiding foreclosure. Now your servicer has to ensure that employees assigned to help you will be able to answer your questions and important documents won’t go missing.

You can think of all these changes as a “back to basics” moment for the mortgage market: No debt traps, surprises, or runarounds. And a market where, if you run into trouble paying your mortgage, you’ll have a fair shot at all the options available to help you avoid foreclosure.

To learn more about our work on mortgages, check out consumerfinance.gov/mortgage.

  • Bradley Burdette

    This was necessary only because the greed from the “Big Banks” has consumed their business models.

    • buggs

      This was necessary to protect investors.

    • Klaus

      This was necessary because consumers bit off too much when times were good. Many used their homes as an ATM and when prices fell they were caught in a bad spot. So the banks who loaned them the money with expectations of being paid back took the loss. It took two to create the mess. Don’t blame the banks for making the money available. No one forced people to drain all the equity out of their home.

      • buggs

        What I mean is that at the beginning it seemed the CFPB wanted to protect consumers. I remember the days before an ATR rule was even proposed. Back in those dark days when the crisis was in full swing, we were being led to believe that anything other than a QM might be a predatory loan. Then when folks later began saying they wouldn’t make a loan that wasn’t a QM, Director Cordray changed the CFPB’s tune and said they never intended to shut out the non-QM market. Well, if that’s the case, then why do we need QMs? The answer is to protect investors who buy mortgage back securities.

      • http://onpolicyandother.blogspot.com/ Darren

        Yes, blame the banks for making the money available to anyone who couldn’t afford it. Their job was to evaluate the creditworthiness of borrowers. They failed because they wanted to make more money immediately, and many high-ranking bankers kept it going because they wagered the government would bail them out once it went wrong.

        These same bankers depend on comments like Klaus’s to perpetuate the myth that over-borrowing consumers caused the economic crash. No, homeowners did not set Fed policies which allowed easy lending, nor did they over-leverage any bank, nor did homeowners create conflicts-of-interests with their own clients, nor did homeowners misrepresent the terms of financial instruments, nor did homeowners rate junk financial products as AAA, etc.

        • buggs

          In the end, Darren, the truth is much more complicated than either you or Klaus have stated. There were many, many more non-bank lenders and brokers making “unaffordable” loans. And guess what? Fannie and Freddie were buying them up like hotcakes! I agree that greed had something to do with it, but there was plenty of if on all sides adding fuel to the fire. Political decisions to fix economic problems like this will always fall short because political fixes are based on where the pendulum is at the current moment. Rarely are legislators brave enough or motivated enough to look far enough down the road and to be fair, those that do usually get voted out by the people riding their emotions at full throttle.

  • buggs

    Thank you very much, Mama Elizabeth, Daddy Chris, and Uncle Barney!

  • Tim Mislansky

    The new rules will provide more information and more protection to borrowers and that’s well intended. As a lender, we see the value in the new rules, but are concerned about how it will impact our ability to help people become home owners, how it will take longer to buy a home and how it will cost Americans more to be home owners. In addition, the tone of this suggests all lenders did things wrong that lead to the housing crisis and that’s just not true. The majority of lenders acted responsibly.

    • http://onpolicyandother.blogspot.com/ Darren

      The majority of lenders acted responsibly.

      Yes, but this sentence elides the distinction between lenders and servicers.

      There need to be more stringent rules in place because a lender can sell your mortgage’s note, and transfer your obligation to pay, to any servicer. Now homeowners will have a fair shot at a loan modification that they AND THEIR UNDERLYING INVESTORS deserve. It will be harder for servicers to skim late fees and push people into foreclosure for a few hundreds of dollars.

      • Tim Mislansky

        Darren, you’re right the new regulations will make it “fairer” for home owners to keep their property and that’s a good thing, but you seem to be working under the assumption that servicers wanted for loans to go into foreclosure. As a lender we use a subservicer and I can say that economically they are better off when loans repay than when they go into default because the fees charged back to the lender are certainly not high enough to cover the increased servicing cost of loans in default. But again, I’m pleased that the new regulations will make it easier for folks to keep their loans as long as they act in good faith.

  • JustTheFactsNoSpin

    Not only does the CFPB deceive in the presentation of their regulations, they will not allow fellow citizens to see facts about the CFPB regulations. For 2 days, they have prevented any challenge with facts to be posted on this site. Shame on the CFPB for lacking respect for citizens.

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