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Getting a Mortgage May Get Tougher Under New Rules

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By Marilyn Kalfus

mortgage_application_form(MCT)—Some shoppers planning to buy a new home in 2014 will get more scrutiny — and likely less money.

Here’s why: A new set of rules for getting a mortgage kicks in. Interest rates are expected to rise. And loan amounts are expected to shrink.

The Consumer Financial Protection Bureau’s rules, which take effect on Jan. 10, establish a national standard for issuing mortgages and are meant to prevent the risky lending practices that led to the housing crash.

The bureau, created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, says the rules mostly codify practices that are already common in today’s more careful mortgage climate.

Many mortgage experts and consumer advocates alike applaud the bureau’s requirements. In addition to looking after consumers, the rules provide a safe harbor for lenders, shielding them from lawsuits.

“Lenders are going to be crossing their t’s and dotting their i’s like never before,” said Bob Walters, chief economist for Quicken Loans. But strict adherence to the rules could result in unintended consequences, he added. “There’s going to be circumstances where people who should get mortgages won’t get mortgages.”

Two other developments also could make getting a home loan more difficult. Some economists predict interest rates will gradually work their way up to the mid 5-percent range by the end of 2014. And there’s a good chance that limits on the size of some popular loans will be lowered next year.

Here’s what’s on the horizon and how it may affect you.

The Rules: The consumer bureau’s goal makes sense: restrict mortgages that borrowers can’t afford. The standards are listed in the bureau’s Ability-to-Repay and Qualified Mortgage Rule.

The Ability-to-Repay standard bans no-documentation loans and requires lenders to verify and document a borrower’s income, assets, savings and debt.

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