Agency Updates Mortgage Disclosure Rules

WASHINGTON (CN) - The Consumer Financial Protection Bureau issued new regulations and a proposed rule meant to ensure creditors make good-faith attempts to determine a consumer's ability to repay a loan under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

"During the years preceding the mortgage crisis, too many mortgages were made to consumers without regard to the consumer's ability to repay the loans," the CFPB wrote. "Loose underwriting practices by some creditors - including failure to verify the consumer's income or debts and qualifying consumers for mortgages based on 'teaser' interest rates that would cause monthly payments to jump to unaffordable levels after the first few years - contributed to a mortgage crisis that led to the nation's most serious recession since the Great Depression," said the CFPB.

In response, the CFPB issued a regulation that would require mortgage lenders to consider a consumer's ability to repay home loans before extending credit. The rule will be effective next January.

Among its provisions, are minimum requirements for creditors making determinations about a consumer's ability to repay loans, including income, employment, amounts of monthly loan payments, and outstanding debts.

"The line the [CFPB] is drawing is one that has long been recognized as a rule of thumb to separate prime loans from subprime loans," the rule states.

If a prime loan meets the qualified mortgage criteria, it will be presumed the creditor made a good faith attempt to ensure the consumer can repay the loan.

Along with the new regulations, the CFPB requested comments on proposed exemptions for certain creditors, such as non-profit creditors and housing stabilization programs.

In the proposed rule, the CFPB expressed concern that the costs of complying with some ability-to-pay requirements "would result in a severe curtailment of the credit offered" by housing finance agencies.

The CFPB also seeks to include an additional definition of a qualified mortgage for some loans made and held in a portfolio by small creditors.

Comments are due by Feb. 25.

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