Supporters of the Dodd-Frank Act of 2010 are crying foul and claiming Lenders have just dodged a bullet, but Have Lenders Just Dodged A Bullet, Or Was It Borrowers? The answer to this question depends on a few things.
- Your understanding of the Lending Industry, and their present risk.
-
Are you a supporter of the Dodd-Frank Act or not?
- Do you think the Lending Industry still needs more regulations?
-
Do you agree or not agree the components of the Dodd-Frank Act which have been enacted by the Consumer Financial Protection Bureau (CFPB) accomplished what they were intended to do?
Depending on how you answer the questions above, will determining whether you believe the Lending Industry just dodged a bullet last week, or whether Borrowers dodged a bullet.
The bullet I am referring to is the defeat of the 5% risk retention the Dodd-Frank Act proposed imposing on Lenders who securitized residential mortgage loans. Which really means a 5% risk retention on all Lenders, because they all securitize residential mortgage loans. The inclusion of the 5% risk retention into the CFPB QRM Rules was defeated last week, leaving supporters of the Dodd-Frank Act very unhappy.
Under the Dodd-Frank Act if a Lender wanted to securitize a mortgage, the Lender would have to retain at least 5% of the loan amount on their books, in other words they could only securitize up to 95% of the mortgage loan. The theory for this provision in the Dodd-Frank Act was that Lenders do not retain any risk for the mortgage loans they originate, so they do not care if the mortgage loan perform well or not.
This theory shows how little understanding supports of the Dodd-Frank Act have of how the Lending Industry works. The fact is when a mortgage loan fails to perform, and the Lender forecloses, everyone losses. The homeowner losses their home, and the Lender incurs costs far beyond what they will receive from the sale of most foreclosed properties, especially those properties purchased in the last decade. Also if the mortgage was an FHA Mortgage the Lender is at risk of losing their Direct Endorsement if enough mortgages fail. So the theory of Lenders not having any "skin in the game" if a 5% risk retention was not imposed, does not hold water. Several Lenders are out of business today because of bad loans they originated.
The reality is if Lenders were mandated to assume more risk they would further tighten the lending guidelines to reduce their risk. Tighter guidelines only mean one thing, less risk for the Lender and fewer loans for Borrowers. This is why several consumer groups, joined Lenders, Homebuilders, and Realtor Associations in fighting this provision from being implemented into the CFPB QRM Rules.
Mr. Frank and all those who think the Lending Industry needs more and more government regulations, are upset that a little bit of the Dodd-Frank Act was chipped away. Supporters claim Lenders have once again avoided having any "skin in the game". On the other hand those who have been living the nightmare of mountains of additional documentation, and guidelines which have excluded more and more Borrower, know the opposition of the 5% risk retention is not and attempt by Lenders and consumer groups to cry wolf, but a very real concern.
Have Lenders Just Dodged A Bullet, Or Was It Borrowers? In my opinion it depends on the understanding the person answering the question has of the Lending Industry, and the impact increased rules and regulations have had over the last few years.
**********************************************************************************************************
Info about the author:
George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
Comments(43)