Mortgage lenders will hear new consumer protection rules to be announced on Thursday, January 10, that prohibit them from offering deceptive teaser rates and requiring no documentation from would-be borrowers.
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The Consumer Financial Protection Bureau will also set limits on interest-only packages or negative amortization loans where balances due can grow over time. The new rules go into effect January of 2014.
Financial regulators are overhauling the housing lending market to create a legal distinction between qualified loans that follow the new rules and unqualified loans that do not.
They are also trying to incentivize banks to lend again. Banks have been slow to lend ever since the Dodd-Frank Act set new limits on bank activities.
The new rules will also give banks a safe harbor that will prevent successful lawsuits for reckless or abusive lending practices.
They also protect consumers who will no longer be set up to fail by being offered terms they cannot possibly fulfill on loans they cannot repay.
The rules may not immediately open up the lending market because most mortgages are still being sold to government-sponsored enterprises like Freddie Mac and Fannie Mae.
But without the new rules, lenders might not make unqualified mortgages, even if the loans are responsibly written.
Lenders do not receive immunity from legal action
in all cases. A high-priced loan given a consumer with weak credit can still be challenged if the borrower can prove he or she did not have sufficient income to pay the mortgage and other living expenses.