WASHINGTON – Lenders would be required to make sure prospective borrowers have the ability to repay their mortgages before giving them a loan, under a proposal released by the Federal Reserve yesterday.
The rule, which is required by the Dodd-Frank financial reform law, is intended to tighten lending standards and combat home lending abuses that contributed to the 2007-2009 financial crisis.
The rule would establish minimum underwriting standards for most mortgages. Lenders could be sued by a borrower if they do not take the proper steps to check a borrower’s ability to repay the loan.
The proposal lays out a general standard for complying with the rule, including verifying a borrower’s income, their employment and the amount of debt they have.
The Fed is seeking comments on the proposal through July 22.
The final rule will be implemented by the Consumer Financial Protection Bureau, which opens its doors on July 21.
