As we all now know lenders operated pretty willy nilly during the housing boom. Borrowers were encouraged to take out loans that had no realistic ability to be paid back.
The Dodd-Frank financial overhaul passed last year aims to prevent these practices from coming back, mandating that lenders ensure that all borrowers have the ability to pay back their home loans.
The Federal Reserve on Tuesday proposed a set of minimum standards for home lending, creating an “ability-to-repay” requirement for most home loans, as part of an effort to make sure that U.S. lenders don’t return to the shady practices of the housing market boom. Click on the highlights for more information.
Under the Dodd-Frank Act Lenders would be able to meet the standard by verifying the consumer’s income or assets or making a “qualified mortgage” that requires the lender to calculate the maximum interest payment in the first five years. Loans that meet that standard would have protections against lawsuits and would have restrictions on fees and would not allow the principal balance to grow.
The Fed is seeking comments on the proposal by July 22nd.