U.S. puts end to risky home loans

AFP-JIJI

The United States issued new rules Thursday restricting the kind of high-risk home loans that led to millions losing their homes in the housing collapse and sparked the financial crisis.

The Consumer Financial Protection Bureau (CFPB) set regulations that forbid lenders from granting mortgages to buyers who are not in the position to repay the loan, requiring strong documentation and basic income-to-loan ratios.

The rules also restrict lenders from offering inducements to borrowers to overextend themselves while protecting the lenders if the borrower defaults.

The new rules require banks to fully document a borrower’s financial status — his or her income, debts, and other assets and obligations — to show that the borrower can pay back the loan. The CFPB also established a new category of “qualified mortgages” that meet basic standards of soundness and simplicity, including a maximum debt-to-income ratio for the borrower of 43 percent.