Stewart CFPB Stewart CFPB

New Lending Environment

Here’s a look at the new lending environment.

As a result of the loans and practices that led to the housing bubble burst in 2008, regulatory changes were designed to protect consumers from falling victim to unfair loans and scams. One measure taken by the CFPB in this aspect is the ability-to-repay/qualified mortgage rule, which creates a 43 percent debt-to-income (DTI) ratio threshold for banks to follow in issuing qualified mortgages (QMs) to consumers. This in turn has affected the process of getting a loan by bringing about more stringent lending standards, to assure that home buyers aren’t getting in over their heads with loans they cannot afford.

In addition to the changes in the loan process, the CFPB’s proposed rule integrating mortgage disclosures ensures that you’ll be getting information about your potential loans in a timely manner – no later than three days after your loan application – in an easier-to-understand format, the Loan Estimate Form. The new form is a direct result of the Dodd-Frank act and was created to:

  • Reduce the amount of paperwork consumers received
  • Make it easier for you to understand the terms of the mortgages being offered
  • Provide the total costs of the loan prior to accepting the loan

If you’ve purchased property before and been through a closing, you’ll notice changes there as well. Previous forms required by the government are being replaced with one new document – the Closing Disclosure Form. Under the proposed rule, you will receive a copy of this form no less than three days prior to your closing so you can have enough time to review the form prior to signing. It was designed to make it easier to understand all the costs associated with the transaction as well as who’s responsible for paying each cost.

The CFPB has also issued strict guidelines that must be adhered to by the third-party companies working with the lender in the transaction – including title and escrow services. At this point, you might ask exactly what part does a title company play in the real estate process?