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Dodd-Frank Act: Still Attempting to Find Its Way

Robert Ottone
Jun 19, 2013

On Tuesday, industry experts met to discuss the qualified mortgage rule before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. The primary issue of those speaking before the subcommittee concerned the notion of certain borrowers being excluded from the lending system due to poorly-defined rules established in the Dodd-Frank Act. Congressman Gregory Meeks (D-NY) stated to HousingWire, "We need to make sure we have a financial system that allows access to credit for low and moderate income households," adding "the housing sector is vital to our economic recovery." Back in January, U.S. News and World Report put together 10 ways Dodd-Frank will hurt the economy in 2013. It would appear that, less than six months later, at least a handful of their predictions are coming true. Part of the issue with Dodd-Frank concerns the three percent cap placed on fees and points, defined loosely by the Consumer Financial Protection Bureau (CFPB) as: ►Fees paid to affiliated (but not unaffiliated) title companies, ►Amounts of homeowner’s insurance held in escrow, ►Loan level price adjustments (LLPAs), ►Payments by lenders to correspondent banks and mortgage brokers in wholesale transactions. Many opponents of Dodd-Frank are quick to illustrate that these four criteria are somewhat nebulous in nature and go to lengths to tie the hands of mortgage professionals. “As a result of this problematic definition, many loans made by affiliates, particularly those made to low-and moderate-income borrowers, would not qualify as QMs,” testified Gary Thomas, president of the National Association of Realtors (NAR). Consequently, these loans would be unlikely to be made or would only be available at higher rates due to heightened liability risks. Consumers would lose the ability to choose to take advantage of the convenience and market efficiencies offered by one-stop shopping.” It’s certainly difficult to find a supporter of the Dodd-Frank Act. While Wall Street reform was clearly in order, the lasting effects (as illustrated by The Nation) indicate that, while the industry is facing stricter compliance, Wall Street has, in effect, succeeded in deconstructing Dodd-Frank to a point where it has little impact whatsoever. Back in April, Sheila Bair, former head of the Federal Deposit Insurance Corporation (FDIC) told The Nation, “At the end of the day, the regulators are outgunned,” referring to the deep pockets of Wall Street interest groups who tore Dodd-Frank apart. Those testifying before the subcommittee on Tuesday asked for reform. To further define the notions put forth by Dodd-Frank’s reform. “The CFPB’s rules adopt the widespread view –including from CRL – that Qualified Mortgages should be broadly defined to encompass the vast majority of the current mortgage market,” said Michael Calhoun, president of Responsible Lending. By failing in providing clear-cut ruling, the opinion is that Dodd-Frank doesn’t do much to support the consumer. "Of all of the Dodd-Frank rules, QM will have the single most significant impact on consumer access to credit and a vibrant, competitive marketplace," said Debra Still, chairman of the Mortgage Bankers Association (MBA). "We all share the same goal—to strike the right balance between consumer protection and access to credit. If not appropriately modified, this well-intended rule may fail consumers in the most fundamental way.”
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