The new rules define a “qualified mortgage” as one that borrowers can actually afford to pay back. It caps the amount of income a home-owner can pay toward debt at 43 percent, and prohibits toxic loan features.

 

"I think what it does, is it sets a standard in the marketplace of what will be safe and sustainable loans over time," said Paul Leonard with the Center for Responsible Lending in Oakland. "It will prohibit the use of risky loan features, like pre-payment penalties, interest-only features, stated income loans, balloon payments, a lot of the features of risky loans that created the financial crisis that we’re living through today."

 

"Anything that prevents that kind of damage from happening again is clearly an important step forward," he said. 

 

Leonard says the rule strikes a fair balance between housing advocates and the banking and mortgage industry. A spokesman for the California Mortgage Bankers Association says he's pleased with the “safe harbor” provision that protects lenders from “frivolous lawsuits," but he's concerned about the impact the rule will have on smaller lenders.

 

Still, some housing activists said Thursday the rules do not go far enough in protecting borrowers, and that the 43 percent threshold is still too high for low-income earners.