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The U.S. Consumer Protection Financial Bureau has laid down new regulations on home mortgages to prevent financial frauds in the property markets.

The downturn in the housing sector was one of the reasons that led to the recession in 2008.

"When consumers sit down at the closing table, they shouldn't be set up to fail with mortgages they can't afford," Richard Cordray, the director of the consumer bureau, told The New York Times. "Our ability-to-repay rule protects borrowers from the kinds of risky lending practices that resulted in so many families losing their homes."

In order to qualify as mortgage borrowers under the new rules and regulations, a client should meet certain standards to avoid any risks.

According to The Chicago Tribune, the new rules do not allow a client to take on a total debt that exceeds 43 percent of their annual gross income. Plus, they need to submit detailed documentation that showcases their ability to repay the loan.

As a result, a person's job stability will also be taken into account.

Lenders are required to look at factors such as current income and assets, employment status, credit history, mortgage's monthly payment, payments such as property taxes & debt obligations and the borrower's monthly debt-to income ratio to avoid another property related disaster.

The regulation does not encourage interest-only mortgages, balloon payments and loan terms of over 30 years.

Before the housing collapse, there were no restrictions on the amount that could be borrowed, nor a person's ability to repay the loan was cross checked. The new rules mark a shift from liberal no-documentation loans to restrictive mortgage transactions.

These regulations help lenders such as banks and credit companies to enjoy immunity and get protection from lawsuits, legal challenges from consumers on loans gone bad.

Davis Stevens, CEO of the Mortgage Bankers Association, agrees that it protects consumers and lenders both. The lenders will not be protected if they go outside the guidelines, the Atlanta Black Star reported.

Stevens praised CFPB for doing "a great job listening to stakeholders" in drafting the rule.

The new rules are effective from January 2014. The CPFB is an independent wing of the Federal Reserve Board under the Obama administration.