Mortgage lenders across the region and country are likely to spend some time over the next year preparing for new rules coming from the Consumer Financial Protection Bureau (CFPB). The CFPB and the new lending rules it’s issuing stem from the financial crisis that began in 2008 and the actions by some lenders that led […]
Mortgage lenders across the region and country are likely to spend some time over the next year preparing for new rules coming from the Consumer Financial Protection Bureau (CFPB).
The CFPB and the new lending rules it’s issuing stem from the financial crisis that began in 2008 and the actions by some lenders that led up to the crash. The bureau approved a new set of rules affecting mortgage underwriting in January that goes into effect in 2014.
The regulations require mortgage lenders to take into account borrowers’ ability to repay their loans as part of the underwriting process, says Edward Spencer, a partner at Syracuse–based law firm Mackenzie Hughes, LLP. The rules mandate a structured procedure to analyze whether borrowers can ultimately pay back a loan.
Lenders must consider factors like borrowers’ current income levels and assets, their current employment status and whether any changes are likely in that status, how their monthly loan payment compares to their income, any other existing loans or financial obligations borrowers have, and more.
In reality, most lenders were already looking at those factors and making them a part of the decision process on new mortgages, Spencer says. The difference for them will be in documentation and compliance.
The new rules mandate that lenders keep careful track of whether and how they considered all those different factors, Spencer says. Those records must be maintained for a number of years after the loan closes, he adds.
Most lenders won’t need to significantly retool their operations to comply with the new rules. But they should take a step back and make sure their process is aligned with the documentation and recordkeeping requirements in the new regulations, Spencer says.
The new rules will be one more item on regulators’ checklists when they visit financial institutions for examinations, he adds.
“They just need to take a break and look at what they currently have in place,” Spencer says. “Conceptually, most of it is common sense and it’s things good lenders have been doing anyhow.”
The new underwriting rules shouldn’t have much real effect on consumers, he adds. They were already required to submit information on income and other factors by most lenders.
The CFPB is just getting started on its rulemaking in response to the financial crisis and housing crash.
A final rule is expected later this year that would combine lending disclosure requirements from two different sets of regulations currently on the books, Spencer says. They’re redundant to some extent, but would combining the two will likely require a major revamping for mortgage lenders.
And consumers would notice that change as well. It applies directly to disclosure forms they receive at the time they apply for a loan, Spencer says.
“For the mortgage industry, this should be an interesting year,” he adds.
Contact Tampone at ktampone@cnybj.com