The Dodd-Frank Bill And C.F.P.B. For REALTORS.

 “The CFPB is the driving force behind almost all policy decisions a lender makes today. Far and away the fastest growing division of the company, we are spending more on interpreting and implementing the guidelines in this massive document. For my REALTOR partners, I would want them to know that we have much stricter guidelines for disclosures to the borrower, many of which are automated and seldom make sense, so our client tends to get forms emailed to them before we get a chance to thoroughly review them ourselves.  Every lender lives in fear of being found in violation, as the penalties are huge and meant to be financially devastating.”   Cathy Warga - Movement Mortgage.

 On July 21^st 2010 the 848 page Dodd-Frank Wall Street Reform and Consumer Protection Act became law. As of July 2012 only 30% of the rules and regulations are complete, but they have already expanded to 8,843 pages of law, so every page of the law has created ten pages of regulations so far. This has created the single largest government agency in the history of mankind in the Consumer Financial Protection Bureau or C.F.P.B. and every business transaction large or small that has an element of credit will be touched by regulations found on the 1,099 pages of the C.F.P.B.

 

The stated purpose of the Dodd-Frank Act and the C.F.P.B. was to make markets safer for consumers, to conduct rule-making, supervision, and enforcement. To restrict unfair, deceptive or abusive practices, to take consumer complaints, monitor financial markets, and enforce laws that outlaw discrimination and other unfair treatment.

For our purposes, let’s look at how it will affect home mortgages in the coming months.  A great deal of it will be in place late this summer, and more the following January. Most of all it is going to make the cost of a loan to increase to the consumer and strip them of options that we have long enjoyed.

“As you and I both know regulation in the mortgage lending industry has gone from being very lenient to becoming overly regulated by the Federal government over the last decade.”  Todd Hollingsworth – Midwest Bankers

“Right now the new QM, CFPB has had little to do with impact on the consumer/Realtor. Most of the rules are yet to come. The biggest thing I think we will be seeing will be the new HUD (which comment just recently ended). Even though the comment period just ended, I think there will be minor changes to the proposed HUD. Most of the changes are around verbiage and the way terms of explained to the consumer. Today, you have total of payments or "cost of credit" if you keep the loan open for the entire period. With the new HUD, you will see a new topic called TIP or Total Interest Paid. This will be calculated to show the consumer if you keep the loan open for the entire period and pay $x interest on a $x loan your TIP is X% (example - $100K loan, $60K interest = 60% TIP).”  Mark Etchison – Stonegate Mortgage.

A new rule issued 1/10/2013 defines “Qualified Mortgages” and these rules will be in effect on 1/10/2014. A qualified mortgage would have a maximum of 43% DTI and will be fully documented, there will be no balloon, no interest only, no longer than 30 years, and the maximum lender fees are 3%. This will limit option due to costs of rebuttable presumption litigation is expected to be between 70,000.00 and 100,000.00 per case on any non-qualified loan. A lender has the legal responsibility to know what a borrower is expected to earn through the life of the loan, there is some uncertainty as to what that means, or how they are to look into the future.

“The Qualified Mortgage rule is out now, and basically gives a waiver to agency eligible deals like Fannie Mae, Freddie Mac, FHA, VA, USDA, etc, but only for a limited time – something like seven years for the waiver & then it can be fought over again at a later date (life everything else these days). Since the government is in complete control of the agencies, they DO have the ability to tweak the automated systems at their leisure, which could completely change which borrower profiles will meet the “waiver-eligible” programs. Personally, I find that a bit scary.”

Jae Tolliver- University Mortgage

A type of non-qualified mortgage would be what is called a “High Cost Mortgage.” The rules for them were issued 7/9/12 and took effect 1/10/13. The lender must notify borrower in advance with terms and fees identified. Borrowers MUST receive home ownership counseling. Any pre-payment penalties or late charges over 4% are banned. As of 1/18/13 and taking effect on 1/18/14 the borrowers MUST receive a copy of the appraisal 3 days before closing. To address the investor flipping a house a second appraisal is required if home is sold within 180 days and a sales price is at least 10% higher. The second appraisal has to be done at no cost to the buyer.

“Basically, more loans are going to fall into a “high cost” category – which will make them harder to obtain, since doing high cost loans is a little on the dicey side for a lender. There are exceptions for smaller loan amounts, which is good – because otherwise it would result in Red-Lining.” Jae Tolliver

 There will be a brand new Disclosure Form to replace the HUD form; it will be five pages long. When a borrower applies for a mortgage the lender MUST get them the loan estimate delivered within three days of application.

There will be no point in trying to do a quick closing within 30 days any longer, there won’t be  any times where you will be surprised on the closing day that” it is in fact going to close today after all.” The buyer MUST have the closing documents in their hands three days before closing. If any numbers change on the Buyer’s side, there needs to be a new Disclosure issued and the clock starts over on the three days. Those days are Monday –Saturday and not counting Sundays or Federal Holidays.

So bottom-line was summed up nicely by Todd Hollingsworth of Midwest Bankers.

“Dodd- Frank Act:

Pros-

·         Standardized Compensation

·         Required lenders to become more precise and accurate on their overall fees because of the 10% max tolerance.

Cons-

·         Eliminated the flexibility of the lender to accommodate the consumer with their closing costs, pre-paids, etc. at closing table.

·         Made compensation for all loan types the same when in reality all loans do not take the same amount of time or effort. This was punitive for low-income, self-employed, or credit challenged clients.

·         All clients with small loan amounts are being discriminated against.

·         Ultimately increased overall rates and costs to consumer.

·         Borrowers with excellent credit are being offered higher rates and fees.

·         Increased oversight and regulation has caused road-blocks and delays for the consumer.

CFPB:

Pros-

·         Establishes a consumer advocate bureau to bring calmness to the public that the Federal government was addressing any lack of oversight.

Cons:

·         Market had already responded and addressed the matters that the CFPB set out to do.

·         8 required steps for mortgage qualification.

·         Implementation affordability standards at 43% DTI unless approved by FHA, VA, USDA, Fannie, Freddie, creating a misunderstanding in the market place.

·         Redundant oversight.

FHA:

Pros-

·         Will encourage early payoff for FHA loans.

·         Helps keep rates low on FHA loans because of the long-term insurance guaranteeing banks.

Cons-

·         Will worsen the overall quality of loans in FHA guarantee pool by driving higher credit borrowers away.

·         Borrowers will have MI for life of the loan.”

“FHA – Wow! Making it very unattractive for any borrower, really making it a program now for only lower credit scores and little down payment buyers. This is a dramatic shift from just a few years ago. PMI is now more affordable and much easier to obtain than in the worst of the downturn. For my Realtor Partners – credit score is everything! If we can get buyers up to say 700 or higher, PMI will be lower than FHA. There is a conventional program that only requires 3% down.”

Cathy Warga – Movement Mortgage.

“No law will ever ‘fix’ the bad intentions, and we’ve had enough law on the books to prosecute bad guys for years. There’s just not been enforcement. When you do see prosecution these days, you see a lot of ‘wire fraud’ charges, since wiring funds was involved in whatever scheme has been exposed. That law has been there for years and years, so why the need for thousands of pages of new legislation."  Jae Tolliver – University Mortgage

Ultimately, it is going to just make the loan process longer and more difficult. The best thing to do is to prepare your clients expectations that it will be a process but if they work with you, as a professional everything will be just fine.

Now a tip for you as a REALTOR. Be sure to work with professionals in lending and title as never before because C.F.P.B. has an agenda as a regulatory police force, and if they find a case where they feel a consumer is wronged, they will come after everyone in the chain, lender, title, and Realtor. Make sure your partners are following the guidelines.