In April, the Federal Reserve issued a proposed rule that would require creditors to determine a consumer's ability to repay a mortgage before making the loan, and would establish minimum mortgage underwriting standards. The proposal would apply to all consumer mortgages except home equity lines of credit, timeshare plans, reverse mortgages or temporary loans and would provide four options for complying with the ability-to-repay requirement.
- considering and verifying specified underwriting factors, such as the consumer's income or assets;
- making a “qualified mortgage,” which provides the creditor with special protection from liability under certain conditions;
- making a balloon-payment qualified mortgage in rural or underserved areas;
- refinancing a “nonstandard mortgage” with risky features into a more stable standard mortgage with a lower monthly payment.
The Fed noted that it will not finalize the proposed rule because its comment deadline on the proposal is July 22, but general rulemaking authority will transfer to the Consumer Financial Protection Bureau on July 21.
To find out more about the Federal Reserve proposed rule visit the Texas Bankers Association.