How great an impact is Dodd-Frank having on mortgage lending?

August 5, 2014 at 8:59 am Leave a comment

I want to thank the American Bankers Association for letting me be an honorary member for this post today. As I looked around for stuff to write about what struck me as most interesting and informative came from the banker’s side of the aisle.  

That was the question the Federal Reserve tried to answer in its most recent Survey of Senior Loan Officers and the results provide support for both opponents and proponents of the mortgage lending rule changes. (Incidentally, I would love to report on the same type of survey results for credit unions, our industry should take this on).

Most importantly, while banks are certainly loosening the spigot on mortgage lending, if you don’t qualify for a conforming loan you aren’t going to find it anywhere near as easy to qualify for a mortgage as you did before the meltdown. As summarized by the Federal Reserve: “[t]he majority of banks reported that the new rule has had no effect on the approval rate of prime conforming mortgages, in part because those loans qualify for a safe harbor under the exemption for loans that meet the underwriting criteria of the government-sponsored housing enterprises (GSEs). In contrast, about half of the respondents indicated that the ATR/QM rule has reduced approval rates on applications for prime jumbo home-purchase loans and nontraditional mortgages.“

Dodd-Frank is having a pronounced impact with 47.8% of respondents indicating that they would be approving more prime mortgages but for the QM rules. Interestingly, that is almost the same response the banks gave when asked about not-traditional mortgages.

The parts of the survey that concern me most are those indicating that smaller banks are pulling the reigns in tighter than larger ones. For instance, 33% of larger banks are making fewer nontraditional loans while 61% of all other banks are tightening standards.

Bottom-line: the stated goal of Dodd-Frank was to cut back on reckless underwriting. So far, so good. The hope of the CFPB was that it could accomplish this goal with minimal impact to smaller credit unions and community banks. This may ultimately prove to be an impossible challenge. After all, larger banks are better able to absorb real estate losses and legal costs than smaller depository institutions ever will be.

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Since I’m channeling my inner-banker today let me compliment the American Bankers Association on a recent letter to the Bureau requesting clarification on notice requirements for delinquent real estate loans, as well as other areas where guidance would be helpful. You now must wait 120 days before commencing a foreclosure action. The ABA asks how this requirement applies to “rolling delinquencies” where a member pays off some but not all of the debt over the 120 day period. As the ABA explains “[e]ven though the borrower may resume making scheduled monthly payments, s/he never becomes fully current on the loan and is unresponsive to loss mitigation outreach efforts. The CFPB’s servicing regulations do not specify how a servicer is to calculate delinquency for purposes of the 120-Day Rule.”

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If you are thinking of selling your debt to third-party debt collectors then you might want to take a look at this Guidance warning depositors to be mindful of the operational and reputational risks that come with such sales. Now I’m talking specifically about companies that buy your debt and then pursue payment not the run-of-the mill third-party collector that all creditors have to turn to occasionally.

Third-party debt purchasers have really moved up the depth chart of groups that consumer advocates love to hate in recent months. As I explained in a previous blog, NYS has also proposed regulations limiting third-party collection practices.

Entry filed under: Compliance, Mortgage Lending, Regulatory. Tags: , , , .

On the Limits of Nudging Does Dodd-Frank Have Teeth After All?

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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