New Consumer Protections on Mortgages

The CFPB (Consumer Financial Protection Bureau) released new mortgage rules earlier this month. These rules bring new protections to homeowners and restrictions for lenders.

These new rules were created to protect borrowers from “bait and switch” situations, where the loan is made with very favorable repayment terms, only to change later to less affordable payments and interest rates.

Under the new rules, lenders must now ensure that borrowers can afford to repay the loans that are extended to them, and not just for the first few months. To create a “qualified” mortgage under the new rules, the borrowers’ debt-to-income ratio must be below a certain level. They also may not have a repayment term of more than 30 years, and initial fees must add up to less than 3% of the total mortgage loan balance.

All of these rules combine to help protect borrowers from getting into a situation that will leave them unable to make their payments down the line.

There are also regulations aimed at mortgage servicers: when mortgage payments are collected, they must be processed immediately, and any mistakes must be fixed right away. Servicers must also send clear monthly statements to borrowers.

If a borrower does get behind on payments under the new scheme, there are rules that kick in to help borrowers avoid foreclosure. Lenders must not start the foreclosure process until the borrower is 120 days late on a loan payment. Borrowers are given time under the new rules to request a loan modification or other foreclosure prevention assistance before foreclosure can happen.

Read more about the new rules at credit.org’s post: “New Mortgage Rules Released.”

If a consumer wants to make a complaint about their mortgage servicer under the new rules, they can go to consumerfinance.gov/complaint.

A HUD approved housing counselor can help you make sure you are fully protected under the new rules, or help you with any stage of the foreclosure prevention process. Call us today at (800) 294-3896 for free, confidential assistance.