A new mortgage regulation was introduced by the Consumer Financial Protection Bureau (CFPB) in order to prevent fraudulent lending practices. The new watchdog was first formed in July, 2011 to protect the consumers of the U.S. from any kind of financial irregularities.
The CFPB introduced a major regulation stating that all the financial institutions are required to produce proof of the borrower or customer's ability to afford a mortgage. The banks are required to submit a detailed valuation of assets and authenticated income of the borrower before the loan is sanctioned. The regulation aims at protecting consumers from being lured by banks into unaffordable or high costing mortgage loans, reports Bloomberg.
Banks will also receive some support and gain insurance against law suits. The lending institutions will be protected from being easily sued by customers as they comply with the new rules, reports Newser.
However, some banks have reportedly asked for some time to adjust with the new rules and comply with them. Seven banks of the country urged the bureau in a written notice to grant them a final conformity date. The proposed date is Jan. 21, 2014, by which time all the banks will have adopted the new regulation and be functioning with the same, reports Bloomberg.
The new rules also aim at getting banks to start issuing home loans, which they have been slow in granting since recession hit the country, reports The New York Times.
"When consumers sit down at the closing table, they shouldn't be set up to fail with mortgages they can't afford. Our ability-to-repay rule protects borrowers from the kinds of risky lending practices that resulted in so many families losing their homes" Richard Cordray, Director of CFPB told The New York Times.