New mortgage rules take effect

New mortgage rules written by the Consumer Financial Protection Bureau (CFPB) went into effect last week, requiring lenders to verify that borrowers can repay their mortgages.

Banks will now be required to consider several factors that indicate a borrower’s financial health, including credit history, existing debt and income under the new rules. Most mortgage borrowers will see little or no impact on their ability to get a mortgage, but they will have to provide more proof the loan will be affordable.

The new rules aim to protect consumers in the process of buying a home and if they run into trouble paying their mortgages.

The CFPB has created a category of home loans that offer lenders broad legal protections against borrower lawsuits, provided they adhere to certain criteria. These “qualified mortgages” limit upfront fees and bar risky features such as no-interest periods that can leave homeowners stuck with unsustainable loans. The loans are available to consumers who have a debt burden that is no more than 43 percent of their income.

Under the new rules:

• Lenders must determine that borrowers can afford a mortgage before making the loan. Mortgage lenders must look at a consumer’s income and assets, along with debt, and weigh this against the long-term monthly payments — not just a teaser rate.
• For people who already have mortgages and are making payments, the new rules will act as a backstop. Mortgage servicers have to clean up their act by promptly crediting payments, tracking paperwork accurately and responding directly to consumers. If you fall behind on your mortgage, your servicer will now be required to reach out to see whether you need help. If you apply for a loan modification, it will have to process your application and provide you with any help available.

A recent study by the Woodstock Institute found that complaints about mortgages were the most common type of complaints from consumers, comprising 49 percent of all complaints to the CFPB.

“The CFPB’s rules promote safe and sustainable homeownership and prohibit some of the worst practices that led to the burst of the housing bubble,” said Dory Rand, president of Woodstock Institute, in a press release. “We must ensure that the rules are strongly enforced so that mortgage borrowers can be confident that lenders are setting them up to succeed.”

Homeowners can use a number of resources provided by the CFPB, including a summary of the new rules, tips for homebuyers, sample letters to mortgage servicers to correct errors and request information, a checklist for avoiding foreclosure, and more.

If borrowers suspect that their lender or servicer is not complying with the new rules, borrowers should file a complaint with the CFPB.