A Reuters article this morning reported that more than five years after the housing market collapsed, the U.S. government's Consumer Financial Protection Bureau consumer watchdog agency has announced it will now require banks to verify a borrower's ability to repay loans to ward off the kind of loose lending that helped push the U.S. economy into recession.
"The U.S. economy is still feeling the after-effects of the bubble, which sparked a global credit crisis after it burst in 2006," the article said. " As the housing market imploded, banks sharply tightened the screws on lending.
"The new rules are intended to combat lending abuses that contributed to the U.S. housing bubble, when shoddy mortgage standards led American households to take on billions of dollars in debt they could not afford.
"Regulators said the new rules would head off future crises by preventing irresponsible lending, without forcing banks to restrict credit further. Lenders will have to verify a potential borrower's income, the amount of debt they have and their job status before issuing a mortgage.
"And because lenders are likely to want the heightened legal protection that comes with offering certain "plain vanilla" loans, the rules could go a long way in determining who gets a loan and who can access low-cost borrowing rates."
Consumer Financial Protection Bureau (CFPB) Statement