This week in personal finance
An approved mortgage loan application form.
The Federal Reserve says we are taking on an increasing amount of debt as individuals
"Consumer credit rose more than $16 billion in November, that's compared to October, the month before," says Gura. "The key issue here is that it was $2 billion more debt than we racked up in October. That means not only are we still digging ourselves into a hole with debt, but we're digging it at an increasingly rapid pace."
The Federal Reserve says people were not using credit cards to buy holiday gifts -- the increased debt was primarily for car and student loans. On the positive side, the increase in debt does show that people can get loans and have enough confidence to buy.
The Consumer Financial Protection Bureau announced new mortgage rules
"These rules say that lenders who want to sell loans to Fannie Mae and Freddie Mac will have to sort of pre-qualify borrowers. What that means is they will have to confirm that a borrower will be able to pay back a loan before the lender makes that loan. This is a different standard, it's a tougher standard than we've had and that could make it more difficult still to get a mortgage in the future because lenders are a lot less likely to make those exotic, interest-only type loans now," says Gura.
When will the new rules go into effect?
In a year -- January 10, 2014
Why is the Consumer Financial Protection Bureau doing this?
The idea is to prevent the kind of Wild West that prevailed in loan land before the financial crisis -- where lenders wrote mortgages for many people who couldn't afford them. The CFPB says it designed these new rules to make sure that that lenders only make loans that consumers can actually afford to pay back.
During the housing bubble, many lenders had underwriting standards that weren't very strict -- sometimes they didn't even check documentation. But now, with the new criteria, a loan that meets the standards of the CFPB will become a "qualified mortgage."
What is a qualified mortgage?
The CFPB says qualified mortgages are a category of loans where borrowers would be the most protected. These loans, among other things, cannot have certain risky features such as negative amortization, where the amount owed actually increases for some period because the borrower does not even pay the interest and the unpaid interest gets added to the amount borrowed. Banks that comply with the new criteria will be protected from lawsuits -- if a mortgage is qualified, a borrower will have fewer grounds to sue. And qualified mortgages will be easier to sell -- Fannie Mae and Freddie Mac are likely to buy them over mortgages that don't make the qualified mortgage standards.
What are some features of the new rules?
- Potential borrowers have to supply financial information, including proof of income, employment and credit, and lenders must verify it;
- To qualify for a particular loan, a consumer has to have sufficient assets or income to pay back the loan; and
- Lenders will have to determine the consumer’s ability to repay both the principal and the interest over the long term -- not just during an introductory period when the rate may be lower.
Guns and gun control
A series of meetings were held in Washington, D.C. to discuss gun policy this week. Vice President Joe Biden -- who is overseeing the entire process -- was at several of the meetings. In attendance were various groups from all sides of the gun issue -- including advocates of sportsmen and women, the NRA, and groups who want more restrictions on guns.
"People I've talked to have said that they get the sense that it's promising. They're optimistic that something will come out of this. The vice president's report, his recommendations, are due to the president by the end of the month. Vice President Biden said he's going to have them there by Tuesday," says Gura.
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