New Dodd Frank Rules for 2014

Legal Compliance Resource
January 22, 2014 — 1,057 views  

The Chris Dodd- Barney Frank legislation is set to take to the real estate and mortgage market through a whirlwind. The Dodd-Frank reform came up with a set of 7 rules last January that could potentially change how the mortgage industry operates. By mid-year, the CFPB (Consumer Finance Protection Bureau) finalized all clarifications and amendments. While some of the rules have already been in effect for a while now, others will take the stage this January. While banks have been long preparing for this, many people are barely even aware of it.

How Prepared is the Industry?

Many organizations have been lobbying pretty hard, for a while now, seeking for extensions in the compliance deadline, which has been made mandatory. Another rising concern is regarding the amount of pressure small independent banks will have to face, as even the smallest of changes can take months to get adjusted to new systems, policies and procedures, along with retraining the staff and revising the underwriting requirements.

What this Means to the Consumer

The Ability to Repay and Qualified Mortgage standards rule intends to shield the consumers from unreliable mortgage lending. It does so by establishing strict guidelines and procedures to differentiate prospective borrowers from those who can pay back their loans. Another mortgage servicing rule intends to protect homeowners who are facing foreclosure better. The loan originator compensation rules helps in addressing practices which encourage borrowers to edge towards high-cost or risky loans.

The rules also come with its fair share of cons as nearly 20% of consumers who currently have mortgages, might not get qualified mortgages. This means they'll either have to look elsewhere for mortgage loans, or banks will need to price it higher as they aren't protected against lawsuits. This could bring more people into rental markets while also bringing sub-prime loans to the fore again. While residential homes have been getting institutional money for years now, Wall Street's all set to collect the rental checks now until the market bounces back with better ROI. This doesn't come at the best of times as the US home-ownership stats, which are already on a downward spiral, dropping from 69% to a meager 63% today. The social outcomes that this encompasses might be drastic, as nearly 75% of America's wealth comes from home-ownership. If this tips the wrong way, the disadvantages may far overshadow the benefits of these new norms.

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