Thursday, January 17, 2013

Feds Tighten Mortgage Lending Rules; Banksters Get Some Wiggle Room In Making Loans, Phase-In Period To Lessen Chances Of Getting Hammered By Homeowner Lawsuits For Screw-Ups

The New York Times reports:

  • Homeowners got their first big chance to judge the fledgling regulator charged with policing abusive lending after the introduction of a broad set of mortgage rules on Thursday.

    The regulator, the Consumer Financial Protection Bureau, gets mostly high marks for the policies, which are intended to prevent the practices that fueled the subprime debacle and the foreclosure crisis. But the agency made a few concessions to banks that consumers advocates say could leave borrowers vulnerable.

    "While the bureau's new rules promote" affordable loans and better products, "they still leave the door open for abuses," said Alys Cohen, a lawyer at the National Consumer Law Center.

    The new rules, broadly outlined in the Dodd-Frank regulatory overhaul, will have enormous influence on the mortgage market. They are intended to ensure consumers don't receive home loans with deceptive terms or onerous debt burdens.

    In short, banks have to make affordable mortgages, and if they don't, they face a greater legal liability. Under the new rules, it will be much harder for banks to give out mortgages without properly checking income, or with interest payments that suddenly jump to much higher levels.

    "These rules now require lenders to determine that borrowers have enough income to repay loans," said Michael D. Calhoun, the president of the Center for Responsible Lending. "This common-sense requirement would have prevented much of the damage of the mortgage and financial crisis."

    Even so, lenders managed to put their stamp on the regulation, winning some important features.

    As part of a fervent lobbying effort, banks warned repeatedly that strict regulations could crimp lending at a time when the housing market was just starting to get back on its feet. Regulators seemed to give some credence to that concern. Citing the "fragile state" of the housing market, the bureau said it would allow new mortgages to meet more flexible standards for affordability during a phase-in period of up to seven years.

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