How does the “ability to repay” rule affect lenders?

The "ability to repay" rule primarily impacts lenders by establishing a framework that ensures borrowers can manage their mortgage payments without depending on potentially unstable or risky financial products. This rule compels lenders to conduct thorough assessments of a borrower's financial situation, including income, debts, and creditworthiness, to determine if they can afford the loan over the long term.

By emphasizing the necessity for responsible lending practices, the rule promotes stability within the housing market and reduces the likelihood of defaults, which can have broader implications for the economy. It does not directly dictate loan terms such as interest rates or require that all borrowers, irrespective of their financial situation, be approved. Therefore, this regulation serves to protect both lenders and borrowers, fostering a more sustainable lending environment.