March 14, 2014
Good news for people shopping for a mortgage – and for current homeowners facing foreclosure because they can no longer afford their home loan: New mortgage regulations drafted by the Consumer Financial Protection Bureau recently took effect and they provide a slew of new rights and protections for consumers.
One of the cornerstones of the new mortgage rules is that lenders now are required to evaluate whether borrowers can afford to repay a mortgage over the long term – that is, after the initial teaser rate has expired. Otherwise, the loan won't be considered what's now referred to as a "qualified mortgage."
Qualified mortgages are designed to help protect consumers from the kinds of risky loans that brought the housing market to its knees back in 2008. But obtaining that designation is also important to lenders because it will help protect them from lawsuits by borrowers who later prove unable to pay off their loans.
Under the new ability-to-pay rules, lenders now must assess – and document – multiple components of the borrower's financial state before offering a mortgage, including the borrower's income, savings and other assets, debt, employment status and credit history, as well as other anticipated mortgage-related costs.
Qualified mortgages must meet the following guidelines:
Lenders may still issue mortgages that aren't qualified, provided they reasonably believe borrowers can repay – and have documentation to back up that assessment.
New, tougher regulations also apply to mortgage servicers – the companies responsible for collecting payments and managing customer service for the loan owners. For example, they now must:
With limited exceptions, mortgage servicers now cannot: initiate foreclosures until borrowers are more than 120 days delinquent (allowing time to apply for a loan modification or other alternative); start foreclosure proceedings while also working with a homeowner who has already submitted a complete application for help; or hold a foreclosure sale until all other alternatives have been considered.
For more details on the new mortgage rules, visit www.consumerfinance.gov/mortgage.
Bottom line: You should never enter into a mortgage (or other loan) you can't understand or afford. But it's nice to know that stronger regulations are now in place to help prevent another housing meltdown.
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