The mortgage market will undergo radical change on Jan. 10, when virtually every aspect of home financing will be commandeered by the Consumer Financial Protection Bureau. The consequences of government overreach for creditors and borrowers will be all too predictable—more costly products and services, fewer options and, worst of all, the erosion of economic freedom.

The cornerstone of this new Dodd-Frank regime is a lender obligation to ensure that borrowers have the “ability to repay” a mortgage. This provision is also the basis of an expansive, new consumer right to sue creditors for miscalculating their financial fitness for a loan. Dozens of new servicing dictates also loom.

The costs of the regulations have been mounting for months, as creditors reconfigure policies and procedures, reprogram loan origination systems, retrain personnel—and hire consultants and lawyers to navigate 3,500 pages of rules. Even more daunting is the prospect of a further tightening of credit, which will reduce creditors’ revenue, undermine recovery of the housing market, and raise a barrier to the wealth creation associated with property investment.

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