US banks face tighter mortgage rules



REUTERS

Published — Friday 11 January 2013

Last update 10 January 2013 11:39 pm

| نسخة PDF Print News | A A

WASHINGTON: The US government’s consumer finance watchdog said it will force banks to use new criteria to determine whether a borrower can repay a home loan, in an effort to avert the kind of loose lending that helped push the economy into recession.
Banks will have to verify a potential borrower’s income, the amount of debt they have, and their employment.
The Consumer Financial Protection Bureau (CFPB) said its new guidelines would also protect borrowers from irresponsible mortgage lending by providing some legal shields for lenders who issue safer, lower-priced loan products.
The industry, which has shelled out billons over the past year to settle lawsuits that it falsified loan documents and pushed borrowers toward mortgages they couldn’t afford, will likely lean toward the protections offered by making such “qualified mortgages.”
“When consumers sit down at the closing table, they shouldn’t be set up to fail with mortgages they can’t afford,” Richard Cordray, the bureau’s director, said in a statement.
With the sweeping changes, financial regulators are aiming to reform the housing finance market and give a jolt to lending, which has been sluggish since the credit crisis and the enactment of reforms that limit bank activity.
Lenders and consumer groups have anxiously awaited the new rules, which are among the most controversial the government watchdog is required to issue by the 2010 Dodd-Frank financial reform law.
Each had feared a narrow definition of a “qualified mortgage,” saying such an approach could limit the types of home loans offered.
Mortgage bankers said they were largely satisfied with the rules and noted the significance of the legal protections that come with offering “qualified mortgages.”
“This approach should allow lenders to offer sustainable mortgage credit to a great number of qualified borrowers without having to risk unreasonable and overly punitive litigation and penalties,” Debra Still, chairman of the Mortgage Bankers Association, said in statement.
Some consumer groups questioned whether the rules shield lenders too much from lawsuits but generally applauded the guidelines.
The Center for Responsible Lending President Mike Calhoun called them a “reasonable approach to mortgage lending, for the most part.”
“Applying these fair, understandable standards to the mortgage market will foster a more competitive and robust housing industry,” he said.
Dodd-Frank directed regulators to designate a category of “qualified mortgages” that would automatically be considered compliant with the ability-to-repay requirement. The rule was first set in motion by the Federal Reserve and then handed off to the consumer bureau in July 2011.
The CFPB said it would define “qualified mortgages” as those that have no risky loan features — such as interest-only payments or balloon payments — and with fees that add up to no more than 3 percent of the loan amount.
In addition, these loans must go to borrowers whose debt does not exceed 43 percent of their income.
These loans would carry extra legal protection for lenders under a two-tiered system that appears to create a compromise between the housing industry and consumer advocates.
Bank groups had lobbied the bureau to extend a full “safe harbor” to all qualified loans, preventing consumers from claiming in lawsuits that they did not have the ability to repay them. But consumer advocates wanted a lower form of protection that would allow borrowers greater latitude to sue.
Under the new rules, the highest level of protection would go to lower-priced, qualified mortgages. Such prime loans generally will go to less-risky consumers with sound credit histories, the bureau said.
Higher-priced loans would receive less protection. Lenders would be presumed to have verified the ability to repay the loan, but borrowers could sue if they could show that they did not have sufficient income to pay the mortgage and cover other living expenses.
Some lawmakers and mortgage lenders had warned against a draconian rule that could exacerbate the current credit crunch and set back a housing market that has become a bright spot in an otherwise tepid economic recovery.
CFPB officials said they were sensitive to concerns about credit tightening, and designed the rules with provisions meant to keep credit flowing and smooth the transition.
The new rules establish an additional category of loans that would be temporarily treated as qualified. These mortgages could be given to those who exceed the 43 percent debt-to-income ratio as long as they met the underwriting standards required by Fannie Mae, Freddie Mac or other US government housing agencies.
The provision would phase out in seven years, or sooner if housing agencies issue their own qualified mortgage rules or if the government ends its support of Fannie Mae and Freddie Mac, the two housing finance giants it rescued in 2008.
Regulators also proposed creating a qualified mortgage category that would apply to community banks and credit unions.
Banks will have until January 2014 to comply with the new rules, the consumer bureau said.

What's happening around Saudi Arabia

JEDDAH: The Ministry of Education is planning to increase the role of its subsidiary committees in the region and governorates to address the issue of schools increasing the fees on one pretext or another.A source in the ministry has been quoted as s...
JEDDAH: In view of a delay by Twitter in blocking the accounts of Daesh and its supporters, Saudi Twitterati have launched an online campaign demanding closure of these accounts which are being used to spread terror by those who have links with the...
JEDDAH: A young Saudi, who was born disabled, is today considered the best and most famous painter and designer in the Kingdom, professionals working in the area say.Despite being handicapped by birth, Rakan Kurdi, 22, has never given up and has mana...
DAMMAM: All Saudi airports, particularly King Fahd International Airport (KFIA) in Dammam, lack a tourism attraction strategy which requires a formal decision from the government, said Saeed Al-Qahtani, an investor in the tourism sector.He said: “In...
JEDDAH: Interpol is looking for two Saudis — a former Jeddah mayor and former president of a sports club — who have been convicted in cases related to the 2009 flash floods here.The ex-mayor was sentenced to seven years in prison while the sports off...
RIYADH: The Paris-based Organization for Economic Cooperation and Development (OECD) recently discussed here the scope of cooperation with the Kingdom’s Public Education Evaluation Commission (PEEC) in the field of education.The delegation was headed...
RIYADH: Investors and proprietors of recruitment offices have blamed the Ministry of Labor for the rise in the number of illegal brokers, saying that some of the rules are actually counterproductive and promoting black market.The ministry has put a c...
DAMMAM: A period of 20 months will be granted to deliver residential apartments for beneficiaries in the Eastern Province, starting from the day of delivering land to developers, and not from the date of signing the contract with them, according to a...
ALKHOBAR: Bribery can be eliminated by applying the laws strictly and creating public awareness besides an active role by citizens, experts say.Abdulrahman Al-Zahian, a researcher in legal affairs and public policy, said: “The Saudi anti-bribery law...
JEDDAH: Zuhair Rahbeeni, a consultant at the Pediatric and Clinical Genetics Department of Medical Genetics at King Faisal Specialist Hospital and Research Center, said that the criteria used for premarital health examinations fall short of proper st...
JEDDAH: The police in Jeddah found a runaway girl after 17 days. A news website reported that she had gone missing after she took a taxi on one of Jeddah's roads.The mother of the girl said that the police found the girl on Friday after 17 days. She...
JEDDAH: Since the launch of the Asir Initiative, “Asir … a major tourism destination all year round,” under the patronage of Asir Governor and Chairman of the Tourism Development Council Prince Faisal bin Khalid at the end of 2013, the region has man...
RIYADH: King Saud University (KSU), which is leading the vanguard in promoting and supporting scientific research in the Kingdom, will host the Saudi international conference on scientific publishing for 2015 to discuss issues and challenges surround...
RIYADH: The National Committee for Contractors (NCC) at the Council of Saudi Chambers (CSC) and representatives from the Ministry of Labor denied on Sunday delays in releasing SR2,400 in compensation to contractors once the criteria have been finaliz...
MAKKAH: Being at the front of the House of God and the peace and tranquility in the Grand Mosque are feelings that cannot be described, said Egyptian pilgrim Abdul Rahman Mustafa.The Umrah pilgrim appeared to be very happy and content. “Thank God, I...

Stay Connected

Facebook