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New federal rules aim to curb risky mortgages

The rules being unveiled Thursday by the Consumer Financial Protection Bureau impose a range of obligations and restrictions on lenders, including bans on risky “interest-only” and “no documentation” loans that helped inflate the housing bubble.
By DANIEL WAGNER Published: January 10, 2013
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/articleid/3744692/1/pictures/1924911">Photo - This Wednesday, Nov. 14, 2012, photo, shows a home for sale in Leucadia, Calif. Average U.S. rates on fixed mortgages fell to fresh record lows this week, a trend that is boosting home sales and aiding the housing recovery. Mortgage buyer Freddie Mac said Wednesday, Nov. 21, 2012, that the average rate on the 30-year loan dipped to 3.31 percent, the lowest on records dating back to 1971. That's down from 3.34 percent last week, the previous record low. (AP Photo/Gregory Bull) ORG XMIT: NYBZ143
This Wednesday, Nov. 14, 2012, photo, shows a home for sale in Leucadia, Calif. Average U.S. rates on fixed mortgages fell to fresh record lows this week, a trend that is boosting home sales and aiding the housing recovery. Mortgage buyer Freddie Mac said Wednesday, Nov. 21, 2012, that the average rate on the 30-year loan dipped to 3.31 percent, the lowest on records dating back to 1971. That's down from 3.34 percent last week, the previous record low. (AP Photo/Gregory Bull) ORG XMIT: NYBZ143

The agency is charged with reducing the risk of a credit bubble by helping to ensure that borrowers are better informed and loans are more likely to be repaid.

The agency is charged with writing and enforcing rules that flesh out the law passed by Congress.

Some provisions are required under the law, but the agency had broad discretion in designing many of the new requirements.

The rules limit features like teaser rates that adjust upwards and large “balloon payments” that must be made at the end of the loan period.

They include several exceptions aimed at ensuring a smooth phase-in and protecting access to credit for underserved groups. For example, the strict cap on how much debt consumers may take on will not apply immediately. Loans that meet separate federal standards also would be permitted for the first seven years.

Balloon payments would be allowed for certain small lenders that operate in rural or underserved communities, because other loans may not be available in those areas.

The bureau also proposed amendments that would exempt from the rules some loans made by community banks, credit unions and nonprofit lenders that work with low- and moderate-income consumers.


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