The legislation in question is known as the Federal Dodd-Frank Wall Street Reform and Consumer Protection Act that was passed in the United States in recent years, more specifically, in 2010, as the response to the Wall Street financial crisis of 2008. This sweeping legislation was made to introduce more effective forces to regulate the financial practices which was a direct move towards a goal of eradicating another great financial debacle. The mortgage industry has been affected in terms of the numerous regulations and the requirements that were implemented in the pursuit to prevent any predatory loans.
Dodd Frank has a number of impacts on mortgages, but the one that receives the most attention is the introduction of the Consumer Financial Protection Bureau or CFPB. This legislation deals with mortgage lenders and servicers; the agency is responsible for overseeing their operations in line with these laws regarding their practices. Dodd-Frank also brings new rules to the requirements for mortgages in underwriting, which means that it became even more problematic for the borrowers to get the loans that they cannot repay. Moreover, for updated legislation, so-called Qualified Mortgages were also established, aimed at providing relatively safer and cheaper credits for borrowers; thus, the luding balance shifted at the legislative level toward the protection of consumers.
How Dodd-Frank Affects Mortgages
The Dodd-Frank Wall Street Reform and Consumer Protection Act which people know as Dodd Frank was enacted to address the financial crisis of financial year 2008. This new law that has been proposed was intended to spur higher standards of efficiency, more responsibility and openness in the financial sector, along with more consumer rights for consumers. The one that was shaken most by Dodd-Frank is perhaps the mortgage industry.
Because of neglect and corporate greed in the mortgage industry prior to the enactments of the Dodd-Frank Act, the standards for loan approval soared high leading to the mortgage fiasco. Another important requirement of Dodd-Frank was the creation of CFPB, an agency that was supposed to use rules to safeguard those who use financial services to carry out their transactions. These were coordinating the operations of mortgage lending institutions to ensure that borrowers were not exploited.
The most visible from the perspective of mortgages is the “Ability-to-Repay” rule interweave by the Dodd-Frank. It prevents lenders from approving credit based on the borrower’s promise of repaying the loan without providing evidence that the borrow can indeed do so. It is often referred to as the ability of the borrower to repay; however, lenders must consider factors like income, assets, and debts among others when making this decision. This rule will do so by avoiding the kind of reckless lending that led to the overwhelming housing calamity because it ensures that those borrowing funds are not being provided loans they cannot pay off.
Another of Dodd-Frank key stipulations is the so called “Qualified Mortgage” rule. This rule has lay down guidelines in the mortgages that can be offered to borrowers while at the same time offering legal shields for merchants in line with these guidelines. The QM rule provides that in order for a loan to become a qualified mortgage, it has to meet specific requirements, not including higher maximum total loan term beyond 30 years, limitations for fees and points and the maximum debt to income ratio concerning the borrower. Qualified Mortgages granted by lenders allow them a protected status s called ‘safe harbor’ from some legal requirements of securitization that encourages responsible lending.
Another regard in which Dod- Frank has a bearing on consumer credit is that it mandates lenders to publicize more information regarding their mortgage products to consumers. According to TILA Regulation Z, with three years from the date of application for the loan, the lenders have to offer the borrowers a “Loan Estimate” that will indicate the loan terms such as interest rate, amount to be paid every month, and other closed costs of acquiring the loan. Such information empowers consumers in their search for the mortgage to make better choices based on a comparison of various offers received.
In general, the Dodd-Frank act has had a great influence on the mortgage industry and relevant community as it encourages responsible lending and increases the legal responsibilities of such performers, offers the necessary legal instruments for borrowers and lenders, and makes consumers more informed about the terms of the contracts. Although there are arguments that have emerged claiming that Dodd-Frank has made it challenging for some borrowers to access the financial facility for the procurement of a home mortgage, this piece of legislation was aimed at stabilizing and transforming the housing market for the better. Through the regulations made that mandates protection for the consumers and against abusive lending practices, the negative effects brought about by the housing bubble have been eliminated and a sustainable financial environment has been ushered in by the Dodd-Frank Wall Street Reform.
Altogether, the investigation has shown that the Monetary and Fiscal Reform for Consumers with the Wall Street has made large effects on the mortgage industry. Despite it has brought new and severe rules and measures helping to shield consumers against abusive lending practices, it has also provided the same population to get a mortgage more hardly. Thus, using the information concerning the essential points of legislation, established by Dodd-Frank, in combination with cooperation with the relevant lender, borrowers are able to overcome the barriers, which the law established, and receive the required credit.
