CFPB Makes New Rules for Mortgages

In an interview on the Nightly Business Report, Raj Date, the Deputy Director of the Consumer Finance Protection Bureau (CFPB) detailed some new rules on what lenders must ensure in their potential mortgage recipients.  The rules demand that lenders make good faith efforts to ascertain from borrowers the following list of requirements:

That the borrower actually has the ability to repay the loan;

That the borrower has a job;

That the borrow has a certain minimum credit score;

That the borrower has demonstrated the ability to meet monthly payments that include the mortgage, property taxes, and other home expenses.

These requirements, according to Date, are an attempt to develop straightforward, sensible, and consistent criteria for granting mortgages, and are, as he points out, really a return to older, conservative notions of what one needs to be able to demonstrate in order to obtain a mortgage.  This is as opposed to the far-too-loose lending requirements that led to the mortgage crisis in the first place, when banks and speculators, with the encouragement of the federal government, allowed mortgages to individuals who would previously never have qualified.  That practice, combined with international markets buying up American mortgages on the notion that they were a very safe investment, led to overeager lending and the subsequent mortgage crisis.

Of course, following that crisis, mortgages have been hindered by the far-too-strict policies that arose as a consequence.  It was certainly understandable to reel in the enthusiasm after such disastrous effects, but the growth of the mortgage market and the economy as a whole has been slowed by the over-reluctance of lenders to allow mortgages, for fear of further bad debts and uncertain consequences.  Thus, this new set of rules was crafted to give explicit and clear requirements, so that lenders and borrowers can know what to expect, and can be reasonably sure that reckless lending and borrowing will significantly reduced.

Date admits that these are not perfect rules, and there will inevitably be some people who get mortgages who really shouldn’t, and some who would be able to handle one just fine who will have difficulty finding a willing lender.  He makes it clear that the CFPB does not consider this a completed quest, but an ongoing journey to get the best possible lending guidelines for stability and prosperity.  Nevertheless, he considers these rules a definite improvement over both of the previous mortgage situations, one that will hopefully bring more sanity and predictability to the mortgage market.