New mortgage rules from the Consumer Financial Protection Bureau cement in place the tough criteria for getting a home loan imposed after the mortgage meltdown. The rules ensure that the lax practices and toxic loan features (such as exploding interest rates, mushrooming balances and interest-only payments) that were at the heart of the housing bust won't be revived. The rules also protect lenders who comply with them from lawsuits brought by borrowers who wind up in foreclosure.
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For borrowers seeking a regular mortgage backed by Fannie Mae, Freddie Mac, the Federal Housing Administration or the Department of Veterans Affairs (about 90% of the market), not much will change. "It won't get easier to get a mortgage, but it won't get harder, either," says Guy Cecala, publisher of Inside Mortgage Finance. But the cost of a loan may rise as lenders pass along the costs of complying with the rules.
High-income borrowers who would typically have taken out a jumbo loan may be pushed into so-called nonqualifying mortgages outside the parameters of the new rules, for which they will pay higher rates. These borrowers may find fewer options until lenders figure out how to serve that market without taking on liability if the loans go bad.
Simple subprime loans with no gimmicks or teaser rates will come back, mostly for refinancing borrowers with plenty of equity.
Lenders must operate by the new rules by January 2014, and the CFPB has until then to tweak them. Also ahead: specifications about what minimum down payments will be required, if any.