WASHINGTON (CN) – Federal regulators are proposing an expansion of the “ability-to-pay” provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that limit the ability of consumers to take on a more expensive mortgage than they can afford to cover all consumer credit transactions secured by a dwelling.
The new provision applies to all consumer mortgage loans, not just jumbo-loans covered under current regulations.
Creditors will have four options to satisfy the ability-to-pay provisions of the act and must retain proof that the loans they give to consumers satisfy at least one of the options for three years.
The first option requires that mortgages issued are based on standard loan underwriting factors including the income and assets of the applicants, their current employment status, the monthly payments on the mortgage, current debt obligations, their debt-to-income ratio and credit history.
The second and third options are based on the refinance of a non-standard mortgage into a standard one or origination of qualified mortgage providing special protection from an applicant’s other creditors.
Finally, small creditors serving rural or underserved areas that issue mortgages with balloon-payments are excluded from the ability-to-pay requirements if the mortgage is intended as a hedge against interest rate risk.
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