What Dodd-Frank Act means for mortgages
In spite of the political rhetoric that you’ve heard about Dodd-Frank Act, especially regarding mortgages, the news is not as brutal as we’ve been led to believe. In fact, the regulations regarding mortgages in Dodd-Frank are actually well thought out regulations that are designed to provide consumers additional protection from predatory lending practices that in some measure have forced thousands of homeowners into foreclosure during the recession.
Consumer protection clauses
Many consumers found out weeks, months or even years after their mortgages were closed that they may have been over-charged for their loan fees. Oftentimes, banks provided incentives to mortgage professionals and other bankers who convinced borrowers to lock in interest rates or to accept loans that were more favorable to investors. This practice has been curbed with compenasation implementation of Dodd-Frank Act.
Predatory lending practices
The primary protections in Dodd-Frank Act as they apply to qualifying for a mortgage were based on the premise that many borrowers were not qualified for the loans they were approved for initially. This was often because many mortgage lenders relaxed their qualifications to allow more home buyers access to funding. The downside of this was that many of these borrowers did not have adequate income to repay their loans. Hence, the current mortgage foreclosure crisis we are currently facing.
The restrictions placed on lenders vary. In some cases, lenders will have to use more caution using low down-payment programs and in all cases, they will have to ensure that clients provide tax returns and other financial information.. Previously, many lenders were offering programs that were called “low-doc” or “stated income and assets” which enabled borrowers to provide minimal or no proof of income. These days are gone, no longer will lenders be able to approve loans without following some basic guidelines. For most borrowers, this is a good change, for others, it may impact their chance to qualify for a mortgage. However, given that many of these loans were considered “weak” or “bad” loans with high risk, there is little doubt that for most borrowers, in the long run, this is a positive change.
Dodd-Frank Act will not solve all of the problems that were inherent to the mortgage business. The rules are very complicated and some mortgage originators may feel they are too restrictive. For consumers however, the overall goals of the bill were to put in place protections on their behalf which is a win for those who are buying or refinancing a home. Most consumers have not (and probably have no need) to review Dodd-Frank on their own. That’s why at Core Mortgage Financial, we take the time to see how this new legislation impacts you as a homeowner and as a potential home buyer. We’re committed to making sure that our clients have the information they need to make an informed decision.
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Disclaimer: This Article is for informational purposes only. NMLS #849597