Reuters: Financial Services and Real Estate: US consumer cop taking more time on mortgage rule

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US consumer cop taking more time on mortgage rule May 31st 2012, 23:40 By Dave Clarke WASHINGTON | Thu May 31, 2012 7:40pm EDT WASHINGTON May 31 (Reuters) - The new consumer financial bureau plans to take more time than earlier planned to finalize a highly anticipated set of requirements that lenders will have to follow to make sure prospective borrowers have the ability to repay their mortgages. On Thursday, the Consumer Financial Protection Bureau (CFPB) announced it is seeking more public feedback on the issue but still plans to have a final rule out by the end of the year. Bureau officials had earlier said the agency planned to have the final lending rule out by this summer. "We want to ensure that consumers are not set up to fail with mortgages they cannot afford and we want to protect access to affordable credit," CFPB Director Richard Cordray said in a press release. "We are committed to gathering solid data to inform this important rule." The so-called "ability to repay" rule is one of a handful of mortgage rules being closely watched by the lending industry and consumer groups. It is required by the 2010 Dodd-Frank financial oversight law and would establish minimum underwriting standards for most mortgages. It is intended to combat home lending abuses that contributed to the 2007-2009 financial crisis. For instance, it is meant to prevent borrowers from being offered loans without having to provide a lender with information about their finances, an aggressive lending practice that has been heavily criticized in the wake of the crisis. Banks and consumer advocates have been heavily lobbying the agency on the rule and in some areas have formed an alliance even though they are often at odds on regulatory issues. Both groups have warned that if the underwriting standards are drawn too tightly by CFPB it will prevent worthy borrowers from getting a loan. They are at odds, however, over what type of legal protections lenders will receive if they offer straightforward loans -- such as those without interest-only payments and excessive fees -- defined by the rule. On Thursday, CFPB said among the issues it is seeking data on is the relationship between a borrower's debt-to-income ratio and the ability to pay the mortgage. The rule's delay will likely impact the release of another heavily anticipated lending rule required by Dodd-Frank. The law requires that lenders maintain on their books a percentage of the home loans they originate rather than be allowed to package them all into securities that are then sold to investors. The idea behind the rule is that if lenders have some "skin in the game," they will have an incentive to provide loans only to worthy borrowers, since they will bear some of the cost of defaults. That rule, however, relies on a definition of safe mortgages that will be laid out in CFPB's "ability to repay" policy. Banking regulators have said they want CFPB to release its rule before finalizing work on the "skin in the game" regulation. Link this Share this Digg this Email Reprints

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