The Consumer Financial Protection Bureau is rolling out new rules for mortgage lending. The idea is to prevent the kind of Wild West that prevailed before the financial crisis — where the industry extended mortgages to many people who couldn’t afford them.
“The key aspects are the banks have to verify everything you say to them as far as your income your assets and your debts,” says Holden Lewis, an analyst at Bankrate.com. Under the new rules, individuals with a total debt — student loans, car loans, child support, house payments — of 43 percent of their income or more will be unable to get a mortgage.
Some analysts expect the new rules, while tighter, will loosen up the current credit crunch by reducing uncertainty for banks.
“The biggest upside is that it finally gives banks a roadmap of a kind of mortgage they can underwrite without being sued — and that’s been the biggest hurdle to mortgages being more strongly underwritten out there,” says Diane Swonk, chief economist at Mesirow Financial.
Lewis says mortgages may become less innovative and more standardized — but that’s a good thing:
“A mortgage is kind of like a utility. Most consumers should just have plain vanilla mortgages.”
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