U.S. consumer watchdog finalizes new mortgage rules

FILE PHOTO: Tenants and housing rights activists protest for a halting of rent payments and mortgage debt as sheriff's deputies block the entrance to the courthouse, during the coronavirus disease (COVID-19) outbreak, in Los Angeles, California, U.S., October 1, 2020. REUTERS/Lucy Nicholson

WASHINGTON (Reuters) - The U.S. consumer watchdog on Thursday finalized two rules relaxing mortgage-lending requirements regarding a borrower’s ability to repay, in a bid to boost the range of products available to lower-income, riskier customers.

The changes from the Consumer Financial Protection Bureau (CFPB) are part of a broader push by President Trump’s administration to boost affordable mortgage products by reducing lenders’ liability and compliance risk, although some consumer advocates say the changes could hurt vulnerable borrowers.

One measure expands the definition of a general “qualified mortgage,” a category of lower-risked mortgage, by replacing the existing 43% debt-to-income ratio limit with a price-based limit. It also gives lenders more leeway to make “reasonable determinations” of a borrower’s likelihood to repay.

The agency has also created a new “seasoned” qualified mortgage, which would give lenders certain liability protections after they have held the loans in a portfolio for at least three years. Under the new category proposed in August, a first-lien, fixed-rate “seasoned” loan can become a general qualified mortgage after 36 months of timely borrower payments.

“The Bureau’s primary objective with this final rule is to ensure access to responsible, affordable mortgage credit,” CFPB Director Kathy Kraninger said in a statement.

While mortgage-lending groups have praised the Bureau’s efforts to boost more innovative products, some consumer advocates have said the changes strip away important guard-rails and make it easier for banks to target vulnerable borrowers.

The changes come ahead of a Jan. 10 expiration of a federal exemption that makes higher-risk mortgages eligible for purchase by government-run entities Fannie Mae and Freddie Mac.

The CFPB has said that ending that exemption and redefining the ability to repay will increase mortgage competition.

Reporting by Katanga Johnson; Editing by Michelle Price and Aurora Ellis