Market still in deep, despite current bounce-back efforts
San Francisco, CA -- (SBWIRE) -- 01/23/2013 -- The United States has handed down new rules that will restrict the kind of high-risk loans that led to so many Americans losing their homes following the housing collapse which sparked the heavy financial crisis that followed.
The Consumer Financial Protection Bureau (CFPB) has set forth regulations that disallow lenders granting mortgages to those who seek to borrow if they are in no position to repay the loan. The move requires that those borrows require extensive documentation and income-to-loan ratio minimums in order to continue towards a loan.
The rule set also restricts lenders from offering inducements to borrowers for overextending themselves whilst protecting lenders the the individual borrowing defaults.
The aforementioned issues were the hallmarks of the 2006 implosion of the housing market crash that left millions with no way to repay their loans and mortgages, and set up a near -collapse of the U.S. Financial industry.
The economy is still suffering from the property crash, with 10% of all home loans still within default or foreclosure. However, there have been signs that the market is slowly picking up its pace.
“To put it simply: lenders should not set up consumers to fail,” CFPB director Richard Cordray said in a statement.
“When consumers sit down at the closing table, they shouldn’t be setup to fail with mortgages they can’t afford.”
He added: “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.” The new rules require banks to fully document a borrower’s financial status — his or her income, debts, and other assets and obligations — to show that the borrower can pay back the loan.
“This means that lenders can no longer offer no-doc, low-doc loans, where lenders made quick sales by not requiring documentation, then offloaded these risky mortgages by selling them to investors,” the CFPB said.
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