WASHINGTON — The Federal Reserve Tuesday proposed requiring banks to ensure borrowers can repay their mortgages before they give them a 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 proposal is a response to a wave of “liar loans” that lenders offered in the years leading up to the financial crisis. In many cases, lenders asked borrowers to state their income without verifying whether they could afford the loan. This led to a wave of foreclosures, contributing to the crisis.