People cramped for choices with new mortgage rules

The new mortgage rules that will take effect from January 10, 2014 would certainly make it difficult for borrowers as far as exploring different choices are concerned. As per the new rule, banks should take care to ensure that the mortgage EMI’s are designed in such a way that they become affordable for the customers, states Les Christie of CNN Money. This is perhaps the result of the Dodd Frank Law that was passed in 2010. Very stringent penalties await those who do not follow this dictum.

How This Could Impact Lending?

While this new rule may not affect big lenders, small financial institutions, banks and lenders could find the norms too tough to comply. If they were to go strictly as per the norms, chances are that there asset book sizes could dwindle quite dramatically and many of them could be forced to shut shops.

Why These Norms Are In Place?

However, when one looks at this new rule from a rational point of view, there is little doubt that it certainly has some sense to it. Prior to the bursting of the financial bubble, lenders were very indiscreet in their lending. They lent money without checking on the income levels of the borrowers and whether they had any assets to fall back upon. This loophole will now be tightened with the new rule, coming into place.

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