Beginning January 10, 2014, the Consumer Financial Protection Bureau’s (CFPB) new mortgage rules go into effect. These are rights and protections addressing areas in which borrowers were previously unprotected. Here’s what to expect.
1) Loans based on a borrower’s ability to pay. A lender’s decision to approve a mortgage must hinge on the borrower’s ability to pay on the loan. (The ability to pay must be reflective of the life of the loan, and not just initial “teaser” payments.) Considerations should include income, assets, other debts, and credit history.
2) Qualified Mortgages. QMs are mortgages considered by the CFPB to be ones that borrowers have the ability to pay on. Qualified Mortgages are:
- Easy to find
- Easy to understand
- Require a debt-to-income ratio of 43 percent or less
- Have no risky features, such as negative amortization or interest-only payments
- Limit points and fees charged by lenders
3) Steering restrictions. Anyone who assists a borrower in finding a loan cannot be paid more for steering them toward a higher-cost mortgage.
4) Improved loan management. Once a borrower is approved for a loan, the lender must:
- Provide clear monthly statements
- Fix mistakes promptly
- Credit payments the same day received
- Provide early notification of a rate increase (if an adjustable rate mortgage)
- Contact the borrower if they are 36 days late on a payment
5) Foreclosure process limitations. If a borrower defaults on their mortgage, lenders are limited as follows:
- Foreclosure cannot be initiated until the loan is 120 days late, giving homeowners enough time to submit an application for a loan modification, or to pursue other altnernatives
- Foreclosure cannot be initiated if the borrower has submitted a completed application for help
- The lender must provide the borrower with information about the foreclosure process
- If the lender denies a lender’s loss mitigation application, they must explain why
If and when a lender violates any of the aforementioned rights and protections, borrowers should file a complaint with the CFPB, either by phone at (855) 411-2372, or online at Consumerfinance.gov/complaint.