The Consumer Financial Protection Bureau recently issued new rules that were designed to create a “back to the basis” approach for mortgage lending. The new rules have been implemented to lower the risk of defaults and foreclosures. Under the new regulations, mortgage lenders are being asked to follow the Ability to Repay rule and Qualified Mortgage rule.

The Ability to Repay rule requires lenders to ensure that borrowers have enough money to make payments throughout the loan’s duration. It is recommended that the lender observes borrowers’ debt-to-income ratio, which is how much the applicant owes divided by how much they earn each month.

Lenders will be required to document and validate an applicant’s income, assets, credit history and debt. This will result in more paperwork and longer processing times for banks and borrowers alike. In addition, underwriters will approve mortgages based on maximum monthly charges borrowers will face. The small and mid-sized lenders will feel the most impact.

For the Qualified Mortgage Rule, lenders will make sure borrowers have a debt-to-income ratio below 43%. However, banks can make loans on those who have a greater percentage if they have a high level of assets that outweigh debt. Qualified mortgages cannot include risky features, such as terms longer than 30 years and fees and charges cannot add up to more than 3% of the mortgage balance.

These rules will restrict loan officers and mortgage brokers from encouraging potential borrowers to take on high-interest loans that they cannot afford. However, this will also mean fewer qualified buyers and, therefore, fewer homes being sold.