The Economy

Jan 10, 2013 7:15 AM by Garrett Boyd

New federal rules aim to curb risky mortgages

WASHINGTON (AP) - The Consumer Financial Protection Bureau has rolled out new rules designed to ensure that mortgage borrowers can afford to repay the loans they take out.

The rules, which take effect next year, impose a range of obligations and restrictions on lenders.

Lenders will be required to verify and inspect borrowers' financial records. They generally will be prohibited from saddling borrowers with loan payments totaling 43 percent of the person's annual income.

Risky "interest-only" and "no documentation" loans that helped inflate the housing bubble will be banned. The rules limit features like teaser rates that adjust upwards and large "balloon payments" that must be made at the end of the loan period.

The bureau has proposed amendments that would exempt from the rules some loans made by community banks, credit unions and nonprofit lenders that work with low- and moderate-income consumers.

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