New Mortgage Rules Would Limit Risky Lending
The Consumer Financial Protection Bureau is releasing Thursday much anticipated new mortgage rules, which will restrict the kind of subprime lending practices that caused both the financial and housing sectors to crash five years ago.
The new rules come at a time when regulators and banks are trying to find a middle ground between overly lax and overly tight lending standards.
About a decade ago, mortgage lenders started broadening their base of customers by offering an array of exotic loan products with esoteric names: subprime, Alt-A, or low-doc loans that required little to no documentation of income. Teaser rates and option ARMs that offered low initial monthly payments that later ballooned.
Those loans got millions of borrowers into loans they ultimately couldn't afford, and it resulted in one of the worst crashes in modern history.
Reckless Lending
"It's important not to forget where we came from," says Richard Cordray, director of the consumer watchdog agency that issued the new rules. "We have a financial crisis and a lot of pain and misery in this country that was caused by reckless lending and toxic products that should never have been offered and that this rule will see are never offered again."
Cordray says these products are now things of the past.
"We've gotten tens of thousands of mortgage complaints at this point. A big number of them are people who are in trouble now because of reckless lending practices that occurred before the crisis," he says. "If the consumer bureau had been in place 10 years ago, I think none of that would have occurred."
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