The CFPB in January issued rules designed to ensure that lenders verify the finances of would-be homeowners and that borrowers have enough income and assets to repay their loan.
The regulations impose new requirements that bank to verify borrowers’ finances and prohibit so-called “no-doc” loans that became commonplace during the late 1990s and early 2000s.
The rules, required by the Dodd-Frank Wall Street reform bill, also ban the practice of using teaser interest rates that had allowed lenders to hide the true costs of mortgages, as well as qualify borrowers who would not otherwise be eligible.
The guidance issued Thursday is intended to help lenders prepare for examinations after the rules take effect in January of next year.
“We are committed to transparency around our examination process,” CFPB Director Richard Cordray said. “So we have worked hard to provide industry with advance notice of what we will be expecting. That, in turn, will improve compliance and benefit consumers.”
In particular, examiners will be checking whether lenders properly evaluate borrowers’ ability to repay their loans, and that decisions are not based on teaser rates.
They will look for signs of banned points, fees and other risky features, such as interest only loans or mortgages that exceed 30 years. Loan servicers will also be graded on regulations requiring them to issue monthly statements and disclosures.