Proposed Changes to Mortgage Lending Practices

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An article was recently written about proposed changes to lending practices in the mortgage industry.  Some of the changes include:

  • Creditors would have to take into account borrower’s income and employment
  • Monthly payments would be calculated based on highest payment during the first five years of the loan
  • Teaser rates wouldn’t be able to mask the true cost of the mortgage
  • Lender would need to consider borrower’s ability to repay the principal and the interest of the loan
  • Borrowers’ total debt payments could not exceed 43% of their pretax income

I think it’s great that the Consumer Financial Protection Bureau is taking steps to rein in an out-of-control lending market, but are these steps severe enough?  Forty-three percent of your income is a pretty hefty amount.  I had always heard and read that the amount of money spent on housing costs should not exceed 30% of your pretax income, which seems much more reasonable to me. Forty-three percent is a little to close to 50%, and giving away 50% of your income every month sounds like a bad idea.

Any thoughts?



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