In July of 2010, after our economy went through the "Great Recession", we saw the creation of the Dodd-Frank Act. Its purpose was to implement and enforce rules for the protection of consumers and to prevent another housing collapse. Just four years after Dodd-Frank, the real estate industry is again seeing more rules and regulations. Similar to Dodd-Frank, the Consumer Financial Protection Bureau (CFPB) has been created to prevent the irresponsible lending practices that some felt contributed to the housing collapse and to get back to the basics of lending.
One such new rule is called the "Ability-to-Repay" rule and is pretty straightforward. It will insure that the buyer is able to repay the loan by having more stringent requirements for lending institutions when looking at a consumer's financial information. Underwriting requirements will assure the buyer has reasonable income or assets, current employment status, and will also check debt obligations and credit history. Strict requirements will also be put in place for Loan Originators, as well as in other areas of the lending process. Loan Originators will need a criminal background check and be required to have continued, proper training.
As with Dodd-Frank, it will take time for full compliance from lenders as there will be a significant financial impact. Once there is full compliance, we should see a more confident consumer, fewer foreclosures and irresponsible lending practices.