CFPB’s Qualified Mortgage Rule Addresses Ability-to-Repay

04 Feb CFPB’s Qualified Mortgage Rule Addresses Ability-to-Repay

A new rule that was unveiled by the Consumer Financial Protection Bureau (CFPB) called the qualified mortgage (QM) rule was highly anticipated by consumers and lenders for the protections it provides. The most critical aspect of the new rule is the Ability-to-Repay rule, which takes effect in January 2014.

This part of the law protects borrowers by obligating lenders to verify their ability to repay a particular loan, in effect, shielding them from taking loans they can’t afford. It does away with “no doc” or “low doc” mortgages that crippled the lending industry and caused many borrowers to take on too much debt and ultimately fall behind on their payments.

CFPB director Richard Cordray notes, “When consumers sit down at the closing table, they shouldn’t be set-up to fail with mortgages they can’t afford. Our Ability-to-Repay rule protects borrowers from the kinds of risky lending practices that resulted in so many families losing their homes. This common-sense rule ensures responsible borrowers get responsible loans.”

Now, all borrowers must furnish supporting financial documentation when they apply for a loan, and lenders must verify the information before issuing an approval. Supporting documentation includes credit history, employment status, current debt obligations, income and assets, and more.