Thursday, January 10, 2013

CFPB Ability-to-Repay Rule

The Consumer Financial Protection Bureau yesterday announced its new "ability-to-repay" rule.  It requires lenders to ensure that prospective borrowers are able to  repay loans they obtain and it prohibits a variety of risky practices such as "no doc" and "interest only" loans that were significant contributors to the nation's foreclosure crisis.  Here's some of what CFPB chief Richard Cordray said about the new rule:
Unaffordable loans helped cause the worst financial crisis since the Great Depression. People across the country were sold unsustainable mortgages. Some may have entered with their eyes open, seeking to ride the wave of rising housing prices, but many were led astray. For many borrowers, it appears that lenders ignored the numbers to get the loan approved. This kind of reckless lending was an endemic problem. To put it simply: lenders should not set up consumers to fail.

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