New federal rules aim to curb risky mortgages

Federal regulators for the first time are laying out rules aimed at ensuring that mortgage borrowers can afford to repay the loans they take out.

The rules being unveiled Thursday by the Consumer Financial Protection Bureau impose a range of obligations and restrictions on lenders, including bans on the risky “interest-only” and “no documentation” loans that helped inflate the housing bubble.

Lenders will be required to verify and inspect borrowers’ financial records. The rules discourage them from saddling borrowers with total debt payments totaling more than 43% of the person’s annual income. That includes existing debts like credit cards and student loans.

The agency’s Director Richard Cordray, in remarks prepared for an event Thursday, called the rules “the true essence of ‘responsible lending.'”

The agency is charged with writing and enforcing rules that flesh out the law passed by Congress. Some provisions are required under the law, but the agency had broad discretion in designing many of the new requirements.

Crain’s New York

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