Mortgage rules remodeled: homebuyers will see broad new protections when state and federal reforms take effect in January 2014.

• Author: Morton, Heather
• Position: CONSUMER FINANCE

Millions of Americans lost their homes to foreclosure during the recession, and more continue to be at risk. Many simply could not make their monthly payments. Either they weren't qualified for the loan to begin with, circumstances changed, or they weren't prepared when the rate increased.

The federal government responded with The Dodd-Frank Wall Street Reform and Consumer Protection Act--the largest and most complex reform of the financial services industry since the Great Depression. Enacted in 2010, it established the Consumer Financial Protection Bureau to better regulate the products of all kinds of financial institutions, including mortgage lenders, loan originators and mortgage servicers.

The bureau, in January, issued new oversight rules to ensure prospective homebuyers have the ability to repay their mortgages and to make the whole process more transparent. They go into effect in January 2014.

"It is important to ensure that the lending situation that occurred in the last decade is addressed and proper lending policies and practices supported. While not perfect, some of the rules from the CFPB are good and support this goal," says Utah Senator Wayne Harper (R).

Concerns Expressed

The Consumer Financial Protection Bureau has not been without controversy. "The Consumer Financial Protection Bureau has already greatly increased compliance costs for Texas community banks. Smaller banks have seen their compliance and employee costs increase by tens of thousands of dollars on an annual basis as some of the regulations come out," says Texas Representative Dan Flynn (R).

"Further, these new costs will drive down profitability and lead to the consolidation of the banking industry. Fewer banks mean less credit and fewer choices for borrowers across the state."

Critics also object to the bureau having a single director rather than a board of commissioners and contend there is inadequate oversight of the agency's funding.

But others, including the bureau's Director Richard Cordray, argue America's mortgage borrowers bore the brunt of the recession and deserve a robust set of laws to protect them.

Consumer groups generally support the CFPB rulemaking. According to the Center for Responsible Lending, the new rules "generally strike a balanced, reasonable approach to mortgage lending." The center supports the new guidelines as "appropriately broad enough to include the vast majority of creditworthy home owners, and it is clear enough for lenders...