Desperate times call for desperate measures. That’s why the Dodd-Frank Wall Street Reform and Consumer Protection Act was established in 2010. Named after Senator Chris Dodd and Representative Barney Frank, the Dodd-Frank Wall Street Reform Act aims to prevent the collapse of major financial institutions, such as what happened when the U.S. economy flopped in 2008.
Do you have any idea what the Dodd-Frank Wall Street Reform Act entails? If not, you may be surprised to find out that it represents the most comprehensive financial regulatory reform measures taken since the Great Depression. President Obama signed the Act on July 21, 2010.
By now, you’re probably wondering how this ties into mortgages, right? Well, written out, the Act contains more than 2,300 pages. One of the many important factors within those pages is the regulation of credit cards, loans and mortgages. A few key points include:
- Credit Risk Retention: Requires federal banking agencies and the Securities and Exchange Commission (SEC) to issue rules that require securitizers to retain an economic interest of at least five percent of credit risk in assets they securitize.
- Coverage of Mortgage Lending Provisions: Includes mortgage originators who take or assist applications and negotiate terms of mortgages.
- Appraisals: Requires physical appraisal for every subprime mortgage and two appraisals for subprime mortgages when there has been a purchase or acquisition of property at a lower price within 180 days.
How does this differ from pre-2008? For starters, in 2008, appraisal requirements and guidelines weren’t as strict, credit score requirements favored consumers, and liquidity and private investment in the secondary-mortgage market were present. Add these factors up and what do you get? Mortgage financing that was much more available in the market.
During these times, mortgage financing was thought to have been an easy process. Since the 2008 financial crisis, additional regulations have been added to ensure a similar disaster is prevented. However, that doesn’t mean the mortgage process is more difficult now than it was five years ago.
While some guidelines are stricter now than they were in the past (high debt-to-income ratios are no longer acceptable), the process hasn’t changed as much as you might think. For instance, you still have to provide W-2s, pay stubs and bank statements when applying for a mortgage.
If you have questions, we’re here to help. Don’t make the process more difficult than it needs to be.
Have you noticed significant changes in the mortgage process since the Dodd-Frank Wall Street Reform and Consumer Protection Act? If so, tell us about your experiences in the comments below.