The financial and economic crisis of 2008 was in no small part the result of an out-of-control mortgage lending industry. New rules for that industry – rules developed by the Consumer Financial Protection Bureau (CFPB) under the Dodd-Frank financial reform law of 2010 – are now in effect. Their arrival is extremely good news for homeowners, aspiring homeowners, and the country as a whole.
In the run-up to the crisis, millions of Americans received mortgages they could plainly not afford. Lenders and brokers profited more the more loans they made (and got paid extra for more expensive loans); and they had little financial incentive to care about whether borrowers could repay, since they could offload their loans at a profit to retirement funds, local governments, and other investors.
Under the CFPB’s new rules, lenders will be held explicitly responsible for verifying borrowers’ ability to repay. Most mortgages will also be simpler and more transparent, with lower fees. And a lender will no longer be totally free to reward a broker or salesperson for sticking a borrower with a higher-cost loan than they qualify for.
The CFPB has come out with new rules for loan servicers as well as lenders. Since the mortgage meltdown, serious abuses by the servicing industry have led again and again to unnecessary foreclosures with a tremendous cost for families and communities. Servicers have repeatedly ignored rules, contracts and even legal settlements.
The CFPB has already demonstrated a commitment to serious supervision and oversight, so we are hopeful that these new rules will finally be honored, and that homeowners will more often be able to keep making payments and stay in their homes. At the same time, we believe there remain holes in the servicing protections for borrowers, and so it will be crucial to follow how the new standards are working in practice, and fill in gaps where necessary.
Americans for Financial Reform looks forward to working with the CFPB and with our members and allies to realize the full positive potential of these rules to make lending fairer, more transparent and more affordable.
See Media Coverage of Mortgage Rules