CFPB issues new mortgage rules

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WASHINGTON, Jan. 10 (UPI) -- The U.S. Consumer Financial Protection Agency announced new mortgage rules Thursday meant to take the risk out of what is often a consumer's largest loan.

The agency that was born of the 2010 Dodd-Frank financial overhaul law said it was implementing the rule called the Ability-to-Repay Rule, as part of its mandate under that law.

The rule attempts to make lending safer for lending institutions, borrowers and the economy at large. "Unaffordable loans helped cause the worst financial crisis since the Great Depression," said CFPB Director Richard Cordray in a statement.

"People across the county were sold unsustainable mortgages. Some may have entered with their eyes open, seeking to ride the wave of housing prices, but many were led astray," he said.

By example, Cordray noted a complaint heard "from a California man named Henry," who trusted his financial institution as he signed on to a loan valued at more than half a million dollars with a salary "of less than $50,000."

"Simply put, lenders should not set up consumers to fail," Cordray said.

The Ability-to-Repay rule forces lenders to do thorough financial checks on mortgage applicants and verify the consumers ability to afford the loan. It also bans "teaser rates," that are designed to lure consumers into a financial transaction that becomes more expensive later.

The rule sets 43 percent as the top debt-to-income ratio. "This requirement helps ensure consumers are only getting what they can likely afford," the agency said.

Slightly reduced standards will be allowed for what is called "Qualified Mortgages," which are loans for non-profit creditors that work with low and moderate-income consumers and, on a temporary basis, for loans that qualify for Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association protection.