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REAL ESTATE: CFPB issues their new Ability-to-Repay rule     January 11, 2013, 12:54 pm

On January 10th, 2013, the Consumer Financial Protection Bureau issued an important rule which they consider to be one of their most important rules to date.  It is called the Ability-to-Repay rule.    The reason for the rule is to avoid what partly cause the housing crash during the credit crisis.  This will ensure that lenders offer mortgages that consumers will actually be able to pay back. 

“In the run-up to the financial crisis, we had a housing market that was reckless about lending money. Lenders thought they could make money on a loan even if the consumer could not pay back that loan, either by banking on rising housing prices or by off-loading the mortgage into the secondary market.”   This encouraged bankers to base their decisions on quantity of loans and not on the ability of the borrowers to repay their loans.  Such lending behavior subsequently increased mortgage delinquencies and rates of foreclosures. 

“To put it simply: lenders should not set up consumers to fail.”

Some of the features of the new Ability-to-Repay rule are as follows:

-           Potential borrowers will need to provide financial information which the lender will be required to verify;

-          To qualify for the loans, the borrower will have to have sufficient assets or income to pay back the loan;

-          Lenders will have to make sure that the borrower will be able to repay both principal and interest in the long term, not just during the introductory period when the rate might be lower. 


Tatyana Agarunov

New Jersey and New York Real Estate Attorney