Real Estate
July 25, 2017
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Is the end near for Dodd Frank?

By: Scott Sheldon
June 23, 2017

Dodd Frank is the financial overhaul that took place a couple of years ago in the aftermath of the financial crisis. The House of Representatives are advancing a bill known as the Financial Choice Act putting into motion a series of events that may lead to the demise of Dodd Frank. The story is located  here http://money.cnn.com/2017/06/08/news/economy/house-dodd-frank-repeal/index.html.

Here is what this means and how this may affect your ability to secure a mortgage…

The Dodd Frank Bill was a financial reform bill that changed the way mortgages were originated introducing heavy compliance into the mortgage process. Following things that may change if Dodd Frank is eliminated:

Loan officer compensation– Dodd Frank introduced the loan officer compensation rule which mandated loan officers make the same amount no matter what the loan program, product etc. It effectively created a level playing field. The problem is that loan originators prior to the loan officer compensation rule were able to reduce margins for the benefit of the consumer. Today that practice still exists; however, in doing so, the mortgage company must agree to take a loss as they cannot reduce the compensation they pay to the loan officer.

Qualified mortgages– often called QM for short, states the mortgage company needs to prove ATR, which is the borrower’s ability to repay on each and every loan they originate. Additionally, the debt to income ratio cannot exceed 43%. Here is where the red tape comes into play… Fannie Mae and Freddie Mac still allow loans with higher debt to income ratios up to 45% as long as the loan is eligible for delivery to either entity. Qualified mortgage also requires the lenders to have a stake in the loans in which they originate forcing lenders to have higher amounts of liquidity just to originate mortgages. This has brought on more diligence on the side of lenders to focus more on risk associated with the loans they originate. This can be drawn directly to underwriting conditions that come up on loans even if the conditions seem unnecessary.

Integrated TILA RESPA Disclosure Rule– aka TRIDD. This change created additional layers of documentation and mandatory federal guidelines lenders must abide by in the escrow process. Originally, this made loans take longer often at the expense of the consumer when the rule went into effect in October 2015. While lenders have acclimated themselves to this process, a lender would have a much faster ability to move loans through the approval process if this rule was not in place. The rule was generated to provide a more clear and transparent process to borrowers and give them a better understanding of the rates and terms and fees associated with the sought after financing. Mortgage consumers today face the same disclosures expressed eight different ways. Limiting this rule to provide a single clear and concise, one page itemized accounting statement of all the figures, perhaps could make for better understanding of the figures, while easing the disclosure burden on the lender’s side.

What is almost certainly to come as a result of a possible veto of Dodd Frank would be more flexible underwriting programs and products for borrowers who can demonstrate an ability to repay, but are unable to secure financing due to current underwriting requirements. An example of what is soon to come can be directly tied to the recent press story Fannie Mae will be allowing 50% debt to income ratio loans starting July 29, 2017.

If you’re thinking about getting a mortgage and were previously turned down, you owe it to yourself to explore the scenario again to see if there’s another route to take on the type of financing in which you are looking for.

 

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.