New mortgage rules expected to slow sales in 2014

The Consumer Financial Protection Bureau (CFPB) has just issued a final rule in a round of new mortgage legislation that aims to prevent homeowners from taking on too much debt -- and, as a consequence, may constrain sales in 2014.

Much of the new legislation, which is aimed at preventing lenders from selling mortgages that borrowers can't afford, was introduced earlier this year and is scheduled to take effect on Jan. 1. Lenders will have to verify a number of criteria, including income, assets and credit history, or else face the possibility of a lawsuit by struggling borrowers. Borrowers of qualified mortgages are also prohibited from spending more than 43% of their monthly income on debt payment, making interest-only payments or from taking on terms that are longer than 30 years.

While the new rules are designed to curb predatory lending, some industry leaders worry that the limited mortgage availability will mean fewer sales (and associated home improvement purchases) in the new year.

The final rule introduced this week will take effect in Feb. 2015. Lenders will be required to use new mortgage forms that are shorter and easier to understand, as well as provide adequate time for homeowners to ask questions and negotiate terms.