The mortgage standard rules proposes a change requiring banks to ensure their borrowers can repay their mortgages before they offer them a loan. This proposal is a response to an outburst of what they call “liar loans” that allowed borrowers to state their income without the verification that they could in fact afford the loan–which in return led to a large amount of foreclosures.
In an article published by RISMEDIA called Fed Proposes Mortgage Standard Rules on April 21, 2001, it states:
“The rule is required by the Dodd-Frank Act, and it seeks to establish minimum mortgage underwriting standards, where borrowers could sue lenders if an appropriate effort isn’t taken to ensure they can repay the loan.
The provision allows lenders to make a “qualified mortgage,” a loan that meets certain standards that allow it to escape the liability associated with the provision.”
The Dodd-Frank act requires the creation of the bureau that will write rules for mortgages and other consumer credit products, which took place in July of 2011.