This article was originally published in Real Estate Agent Magazine Twin Cities, written by Charity Malmberg, Founder and President of Trademark Title
With any new government administration, we can expect some changes to policies, regulations and sometimes even our own personal lives. The Trump administration has a lot of plans to revisit regulations and laws and make some drastic changes. One such change involves the Dodd-Frank Act and CFPB. Changes to the Dodd-Frank and CFPB could have direct effects on the mortgage and lending industries, so it’s worth your time to investigate. Take a moment to educate yourself on Dodd-Frank and how potential changes may have positive and/or negative repercussions for your business and clients.
Dodd-Frank and the CFPB
Dodd-Frank was passed in 2010 under the Obama administration in response to the financial recession of 2008. The act created a bundle of regulations and new government agencies charged with overseeing various aspects of banking and lending.
One such agency, the Consumer Financial Protection Bureau (CFPB), oversees credit cards, mortgages, payday loans and other financial products. This agency “is supposed to prevent predatory mortgage lending and make it easier for consumers to understand the terms of a mortgage before finalizing the paperwork,” according to Investopedia.com. “It prevents mortgage brokers from earning higher commissions for closing loans with higher fees and/or higher interest rates, and says that mortgage originators cannot steer potential borrowers to the loan that will result in the highest payment for the originator.”
Future of Dodd-Frank
On Friday, Feb. 3, President Trump called for a review of the Dodd-Frank through an executive order. The review is due back in four months and though the executive order does not call for any significant change at this point, it highlights new principals that federal financial regulations should be based on. If Dodd-Frank is found to be too stifling to lenders and not in compliance with these new principals, the Dodd- Frank Act and its related government agencies may be drastically altered or even be repealed altogether. Here are some positive and negative outcomes of that happening.
Like any blanket federal regulations, there are usually some unintentional repercussions that end up negatively impacting businesses and even the consumer. “The over regulation and lack of clarity within the rules has created a situation where investors are afraid to lend,” says Scott Flaherty president of The Minnesota Mortgage Association and CEO of LendSmart Mortgage. “Businesses are unwilling to create or invest in new ideas for fear of reprisal from the CFPB. Without that fear, I believe there would be a variety of options for so many borrowers who do not have a chance at financing today.” Flaherty goes on to say that more lenders and options creates competition within the marketplace, which is ultimately better for borrowers. Additionally, we can assume that costs associated with following these rules would decrease, hopefully providing lower fees and even interest rates.
On the other side of the street, the CFPB and Dodd-Frank have made some positive impacts as well. Scrapping Dodd-Frank altogether could have some negative consequences, especially for the consumer.
“Parts of Dodd-Frank and the CFPB have been very positive and repealing it all together could take away certain protections the consumer now enjoys,” says Flaherty. “The CFPB has attempted to be the single governing voice on a federal level and they have done a decent job of accomplishing this. They have implemented great things for the consumer such as LO compensation reform.” Flaherty goes on to say the “general concept” of the CFPB has helped to prevent practices common in the ’90s and 2000s when some consumers were taken advantage of in order to fund deals given to more savvy borrowers.
As the Trump administration makes changes in the next few months and even years, be sure to continue checking in on the status of the Dodd-Frank and CFPB. It’s in your best interest, as well as the interest of your clients, to stay up-to-date on these policies and regulations that trickle into your business and your clients lending opportunities.