New Mortgage Rules to go into Effect

The Consumer Financial Protection Bureau, stemming from the 2010 Dodd Frank Act, was implemented for the purposes of educating the borrowing public and to ensure that future extensions of credit are suitable for the borrower(s). On January 10, 2014 a new set of standards will go into effect targeting the mortgage industry, specifically the origination of mortgage loans. In effort to determine whether a loan is affordable to the borrower, a lender must verify and document criteria regarding income, assets, credit history, employment status and other outstanding debt obligations. The aforesaid information is required to determine that the borrower has a reasonable chance of repaying in accordance with the terms of the loan. The new requirements will focus on veering away from real estate boom era lending habits which led to borrowers to taking on more debt in which they could afford to repay.

Another change for lenders that will be implemented after January 10, 2014 is that mortgage holders will not be permitted to bundle 100% of loans into securities available for purchase by the investing public. The premise here is to force the mortgage holders to bear an equal proportionate risk as a putative investor when pooling a group of loans into an investment.

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