The Dodd-Frank Consumer Lending Law, Changes Just Made and Possible More Changes Coming
In May of this year congress passed a “Roll Back Bill” to the Dodd-Frank Consumer Lending Law that was signed into law by President Donald Trump. There was some Bi-Partisan support for the law that made several substantial changes and modifications to the Dodd-Frank Law that went into effect back in July 2010. While the just passed rollback law mostly effects smaller regional banks, by increasing their regulatory Threshold Assets from $50 Billion up to $100 Billion, the real encouraging news is that there is Bi-Partisan support in Congress to continue making additional regulatory rollbacks.
If Congress moves forward as is anticipated and passes additional rollbacks to some of the regulatory provisions of the Dodd-Frank Law, there should be some beneficial effects on the mortgage industry, which will also be positive news for the real estate market.
The Dodd-Frank Consumer Lending Law was passed and signed into law by President Barrack Obama, following The Great Recession & The Mortgage Meltdown that began back in 2007 that left both property owners, Big Banks, Wall Street Firms and mortgage investors in shambles. The Big Banks were dropping like flies, and hundreds of thousands of homeowners across the country were in the process of possibly losing their homes due to pending foreclosures.
The public was looking for answers and were demanding that Congress punish those that caused the calamity. Congress all but had to do something to calm the public and show that they cared.
Unfortunately, as is always the case, Taxpayer’s Money was just thrown at the problem, often bailing out the entitles that were partly responsible for much of the problem, and where the politicians who years earlier were mostly responsible for starting the problem, walked way “Scott Free”.
The push for regulatory law changes, in addition to the Billions in Taxpayer Money spent stemmed from the failure of numerous Big Banks, Wall Street Firms and the associated costs of “Bailing Out” many other banks that were suffering from delinquent and defaulted consumer and mortgage loans. The Federal government invested/spending billions in Taxpayer’s Money through the FDIC, which “Bailed Out” the Big Banks and the FHFA, which “Bailed Out” both FNMA (Federal National Mortgage Association) & FMLMC (Federal Home Loan Mortgage Corporation).
At the time many of the component parts included in the Dodd-Frank Law seems reasonable, but like so many actions taken, and laws passed by government, be it at the State or Federal level often have the exact opposite effect than expected.
The Dodd-Frank Law created a NEW federal agency known as the Consumer Financial Protection Bureau which was created like no other federal agency, since CFPB was set up to receive its funding through the Federal Reserve, which locked out congressional oversight and control with the removal of Congressional Funding Appropriations.No government agency has ever been set up before in such an unconstitutional manner. Since the CFPB and its Director, Richard Cordray operated in a world of their own, where the CFPB could and did impose additional regulations and requirements to financial institutions and mortgage lenders, which further imposed crushing and burdensome regulations.
Mortgage Brokers and Appraiser were almost universally blamed for causing the ‘Problem”. The Mortgage Brokerage Industry were just salesman, selling the Loan Products and Loan Programs offered by the Big Banks and FNMA & FHLMC. The Mortgage Brokers, which included our company didn’t determine and create the Underwriting and Qualification requirements for those looking to obtain mortgages. The Mortgage Broker Associations didn’t have enough pull or Lobbyist on “K” Street in Washington DC, so as such, they took the blunt of the blame. The Real Estate Appraisers were just thrown “Under the Bus”. The Big Banks, FNMA & FHLMC had Appraisal Review Departments that reviewed every Appraisal Report submitted for the loans that went bad, but they received little to no blame whatsoever.
The direct outcome was a dramatic reduction in available financing options to consumers, which included potential Borrowers looking to either finance a purchase or refinancing a property already owned.
The age-old Law of “Unforeseen Consequences” so many times rears its ugly head as a direct result every time government coming to the rescue. Many of the “problems and causes” that led to The Real Estate Crash and The Mortgage Meltdown can be traced directly back to government sticking their nose where it didn’t belong. Later, the same government that caused the problem rides over the hill to save the day. We have heard many references to a hypothetical building that’s on fire due to arson and following the call to the fire department the arsonist shows up to put out the fire. This situation sounds ridiculous, most likely would never happen, but happens repeatedly whenever government gets involved.
Running up to The Great Recession and Mortgage Meltdown, The Big Banks, FNMA & FHLMC published Underwriting Guidelines where they would offer loans and financing to Borrowers who had little to no ability whatsoever to ever make the monthly mortgage payments. This was a stupid move then and is and always will be stupid. No wonder there was The Great Rescission & The Mortgage Meltdown.
The Dodd-Frank Law did make some positive changes, such as getting the Big Banks and FNMA & FHLMC out of making mortgages to people who couldn’t pay, but unfortunately the Regulatory laws swung too far the other way. Much of the damage done related to additional qualification requirements, restrictions and prohibitions to many homeowners or prospective homeowners that went far beyond historical mortgage lending regulations and standards.
At our company, we have seen many instances where a Borrower wants, but more so, needs a loan and contacts us to obtain a loan. The Borrower wants to get the loan, we want to arrange the loan and our Investor wants to fund the loan, but due to Mr. Dodd and Mr. Frank, we all had to walk away with our tails between our legs. Because the laws didn’t allow the loan to be funded.
This is the result of ridiculous government protection and requirements intended to help Homeowners and Borrowers at large. The real victim here is the Borrower who really needed a loan, but due to government involvement claiming to protect him, his rights have been taken away, and he is prevented from getting a loan. Thank you, Mr. Dodd and Mr. Frank!!!!!
So many times, we are compelled to inform Borrowers who contact our company for real estate financing…………………… that we can’t help them!…………………………Nobody wins here!
Our company is all in favor of common sense lending Laws that doesn’t cut out the Borrower who needs a loan.
While only small changes to the Dodd-Frank Law have been currently amended, the push is on to make additional changes to crushing regulations that impose substantial compliance costs on mortgage lenders of all makes and models. As is done in all businesses everywhere, the additional compliance costs imposed by the Dodd-Frank Law are passed on and charged to Borrowers that can even get a loan.
The hope is that with the elimination of cumbersome regulations imposed on mortgage lenders and the corresponding costs and time dedicated to compliance with the Dodd-Frank Laws, that more lending programs will be available to Borrowers at lower costs.
That’s our company’s position…………………………..we encourage both agreement or disagreement.