On January 10, 2014, the U.S. Consumer Financial Protection Bureau introduced new rules concerning mortgages. New regulations were a direct result of the adoption of Dodd-Frank Wall Street Reforms and Consumer Protection Act imposed by the Congress. It calls for lenders to make reasonable and good –faith efforts to determine borrower’s ability to repay the loan obligation. If a bank follows new rules and grant a 30 year qualified mortgage that does not exceed fees and points more than three percent of the value of the loan, then they get protection under the Act from foreclosure related law suits. Another criterion under the law is that borrower’s total debt including credit cards and student loans shall not exceed 43 percent of pre-tax income.
Banks have already applying similar scrutiny when the new law came into effect and many criticizes new regulations as leading to predatory lending practices making it harder for low-income families to get into a new home. It makes harder to obtain a bank mortgage for those who are willing to put a down payment less than five percent of the purchase price of a home and with lower credit scores regardless of new rules.