What Could Dodd-Frank Reform Look Like?

The Background

The Dodd-Frank Wall Street Reform and Protection Act was passed into law in 2010, as a response to the housing crisis and the Great Recession of 2008. Its supposed to protect consumers from risky lending practices that caused the mortgage crisis in the first place. The Act set out to improve oversight of financial institutions, banks, hedge funds and other financial type entities. It came with a variety of new regulatory and reporting requirements, as well as annual stress tests for institutions.

Opponents of Dodd-Frank, namely, financial institutions themselves, said it added too much red tape, increased compliance costs and held back competition in the industry. And now, it seems those concerns have been taken seriously. The Senate passed Dodd-Frank’s replacement bill back in March. The House passed it as well.

What’s Changes Have Been Made?

The new bill meant two major changes to some Dodd-Frank provisions. First, it will raise the threshold for what’s considered a “too big to fail” institution. This means fewer banks and lenders will be subject to the stringent reporting and regulatory standards of Dodd-Frank. It could also open the door for smaller lenders and more competition.

For home buyers and small investors, that means more options when it comes to shopping for a loan.

The other major change makes it easier for mortgage lenders to discriminate against potential borrowers. The new Dodd-Frank reform bill scales back a detailed reporting requirement designed to root out predatory and discriminatory lending — specifically against minorities. As alarming as it sounds, the change doesn’t necessarily mean lenders will discriminate against minority buyers. However, it does drive home the need for more diligence when shopping for a loan.

Buying Under The New Bill

Buyers can protect themselves by comparing rates and applying for their mortgage online. Convenience and cost savings aside, shopping online removes the potential for discrimination based on gender, race, mannerisms or any other physical feature a lender could pick up in person.

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*This article does not represent legal interpretation or advice. This is not a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet LTV requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines, and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over life of loan. Reduction in payments may reflect longer loan term. Terms of the loan may be subject to payment of points and fees by the applicant. Seattle Mortgage Brokers, LLC NMLS: LO# 305371 MB# 761615