The Consumer Financial Protection Bureau introduced some back-to-the-basics, common sense, mortgage rules nationwide last week to prevent irresponsible loan practices.
The rules are simple: lenders have to make sure that a buyer can afford their mortgage payment. That means verifying income, assets, debts, credit history and other important financial information. And underwriters can no longer approve loans based on teaser rates.
Most lenders have already been verifying the ability to pay, said Elias Del Gado, a loan officer with Stearns Home Loans in Fresno. Now, it’s more official, he said.
Then there’s the qualified mortgage rule designed to protect consumers. These mortgages cannot include risky features such as interest-only payments or terms longer than 30 years.
These mortgages are available to borrowers with a debt-to-income ratio below 43%, which means that the total of their monthly mortgage payment, plus other fixed debts like car loans, is not more than 43% of their monthly gross income.
Lastly, the new rules give consumers more power to get information about their loans. Lenders have to communicate better with mortgage-holders by providing periodic mortgage statements and responding to written inquiries quickly.
“I’m all for getting rid of loans that should never had been made,” said John Shore, executive director of the Community Housing Council of Fresno. “It’s when we got away from making sure people had the ability to make a payment that we started to fall apart. Quite frankly, if you don’t qualify you shouldn’t get a loan.”