New rules aimed at reducing risky mortgage lending

Consumer Financial Protection Bureau officials today released new rules for mortgages aimed at reducing risky lending practices and allowing borrowers to know exactly what kind of loan they’re taking out, CNN reported. The measure is meant to prevent institutions from giving out loans that their borrowers cannot afford.

The new rules will go into effect on Jan. 21, and lenders will have a year to put them into practice.

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Loans now become “qualified mortgages” when they satisfy new criteria. This, in turn, protects the banks from lawsuits from borrowers. Among the factors being looked at are whether the would-be borrower has sufficient income and assets to pay back the loan and whether he or she can provide employment documentation. If a borrower doesn’t meet these standards, then they can still take out a mortgage, if payments don’t exceed 43 percent of their pre-tax income.

“Our initial review of the [qualified mortgage] rule indicates that this balanced approach can be achieved,” said National Association of Home Builders Chairman Barry Rutenberg in a statement. “To spur the revival of the home lending market, it is essential that regulators act prudently and thoughtfully in the coming year to implement this rule in a sensible manner to avoid disruptions to the housing finance system and ensure qualified borrowers can obtain affordable credit.” [CNN]Zachary Kussin