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CFPB's New Mortgage Rules to Protect Consumers, But Also Banks

The Consumer Financial Protection Bureau (CFPB) is set to announce new mortgage rules and consumer protections that will take effect next year.

Some of the protections in the new rules will include prohibiting banks and lenders from making home loans that offer deceptive teaser rates or require no documentation from borrowers, reports The New York Times. In addition, banks and lenders will be required to take steps to ensure that borrowers have the capability to repay the loans in the first place.

However, while the new CFPB rules appear to be in the consumers' best interests, there are almost as many provisions that protect banks from consumers.

First, along with the provisions mentioned above, some new rules that will protect consumers include:

  • Mortgage originators generally cannot charge excessive upfront points and fees.
  • Loans typically cannot be made if they will load a borrower with payments exceeding 43 percent of income.
  • Limits will be set on interest-only and negative-amortization loans where the balance grows over time.

While these new rules may sound great, those consumers who have been actively house hunting may sarcastically note: "big deal." Just about all of these restrictions have already been implemented by banks, and so there may be little change on the lending environment. In fact, many of these protections help to explain why it's been so hard for borrowers to get a loan.

So how do the new rules motivate banks to lend again? And what are the benefits of the new rules on banks and lenders?

For starters, banks will be offered a "safe harbor" in which they cannot be sued for allegedly reckless or abusive lending practices, reports the Times. To come within this safe harbor, lenders will have to lend to borrowers who have the ability to repay and provide documentation of this ability -- both of which banks already likely do. So banks will basically be immune from certain consumer lawsuits.

The mortgage laws and regulations are complicated and convoluted. If you have a question about your loan or mortgage, you will want to work with a consumer protection attorney. This is especially true when laws that ostensibly protect consumers insulate lenders from liability.

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