Mortgage Reform Update: CFPB Issues Final Rule on Residential Mortgage Lending Requirements
Earlier this month, the Consumer Financial Protection Bureau issued a final rule that prohibits all creditors (and not just banks) from making residential mortgage loans without regard to a borrower’s ability to repay and subjects noncompliant creditors to unprecedented liability, including foregone interest on the loans they made. The final rule sets forth the specific income verification requirements, product features, and underwriting criteria—including a 43% debt-to-income ratio cap—that creditors must follow for residential mortgage loans to be treated as “qualified mortgages” and, therefore, subject to certain protections from liability.
The final rule takes effect in 2014 and sets the stage for another important rule that may be finalized this year: Dodd-Frank’s 5% credit risk retention requirement.