Inquirer Editorial: New rules will help avoid another mortgage crisis

That may be hard news for a family wishing to buy a house, but it saves them from the future heartache of losing that home to foreclosure and causing severe damage to their personal credit.

The new rules also restrict a lender's ability to steer unwitting borrowers into adjustable-rate mortgages, loans with balloon payments and high fees, loans that raise the principal, and other exotic financial products.

The rules give banks more protections, too. They won't be held liable if a consumer fails to pay a mortgage because he lost his job. But they stay on the hook for riskier loans, like those with adjustable rates. Fundamentally, if banks would restrict lending to those who substantially demonstrate the ability to repay that debt, they wouldn't see the record default rates that zapped their bottom lines.

Investors, too, are protected by the new rules. When lenders package loans for resale, they must keep 5 percent of the loans being put into an investment instrument. That would mean the lenders have some skin in the game, too, so it would be in their best interest to sell solid loans.

Too bad the CFPB didn't require lenders to keep an even higher percentage of the loans they sell. That would do more to avoid the havoc that occurred when toxic loans were resold in the marketplace and drained billions from investors, including pension funds and insurance companies.

Regulators also should write tougher standards for Fannie Mae and Freddie Mac, the federally sponsored agencies that guarantee or own more than 80 percent of the nation's mortgages. The federal government is not a bottomless pit full of money to bail out reckless borrowers and lenders. As it asks private lenders to take more care, it must do the same.