Following the financial meltdown that rocked the U.S. economy a decade ago, Congress enacted a variety of regulations in the sweeping Dodd-Frank Act of 2010 to better protect consumers from risky mortgages. Loans that were little understood or that ended up being unaffordable contributed to millions of homeowners losing their homes to foreclosure.
One of the things implemented by Dodd-Frank was the creation of a “qualified mortgage.” Basically, if lenders meet a variety of strict guidelines — such as ensuring a borrower’s loan is no more than 43 percent of their income — they get legal protection if a consumer later makes a claim that they were sold an inappropriate mortgage.
The Senate bill now under consideration (S. 2155) would let those smaller banks and credit unions still qualify for those legal protections without meeting all of the requirements that typically go with underwriting qualified mortgages.
However, the bill would still require them to assess the borrower’s financial resources and debt as part of the underwriting process.
The loan also could not be interest-only or one whose balance could grow over time (so-called negative amortization). Those types of loans proliferated leading up to the mortgage crisis and contributed to homeowners’ inability to keep up with their payments.