Will These New Mortgage Laws Prevent Another Crisis?

More than five years have passed since the housing market collapsed, and only now are regulators addressing the manner in which financial institutions issue mortgages. As part of the reforms mandated by the 2010 Dodd-Frank law, a newly created consumer watchdog — the Consumer Financial Protection Bureau — announced new regulations on Thursday that would require lenders to verify a borrower’s ability to repay loans.

The measures will offer protection to borrowers against the lending abuses that led to the U.S. housing bubble by giving extra legal protection to banks that issue safe loan products, Reuters reported. The low mortgage standards that contributed to the bubble resulted in billions of dollars in debt for American households.

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As lenders will likely desire the additional legal protection that will accompany the safer, lower-priced loans, the regulations will be instrumental in deciding which borrowers can take advantage of low-cost borrowing rates…