Established in 2010, rules known as the Dodd-Frank Act restricted the activities of banks, hedge funds, and derivatives trading, allowing the United States to quickly emerge from its worst economic crisis since the Great Depression. This law, signed by Barack Obama, in particular, obliged financial institutions to increase the proportion of their own capital in order to avoid the occurrence of excessive debt. Mostly, “Mortgage Reform And Anti-Predatory Lending Act” (Mortgage Reform Act) contains collection of prohibitions and restrictions, instead of actual definition of predatory lending.
This act consists of 8 (from A to H) subtitles. In this article, we will analyze some important points of each subtitle.
All Mortgage Creators must include on all loan documents any unique identifier of the mortgage creator provided by the Registry described in Secure and Fair Enforcement for Mortgage Licensing Act 2008 (SAFE Act).
A “Residential Mortgage Originator” is defined as any person who either receives compensation or declares to the public that they are applying for a home loan, assisting a consumer in qualifying for a loan, or negotiating the terms of a loan.
For any home mortgage loan, no mortgage lender can receive compensation, which is based on the term of the loan, other than the principal. Generally, the creator of the mortgage can only receive payment from the consumer, except as required by rules that may be established by the Board.
This section of the Law sets out national underwriting standards for home loans. Qualified Mortgage is also defined as any home mortgage loan where recurring payments do not add to the principal balance and do not allow the consumer to defer principal (with some exceptions) and the points and commissions are less than 3% of the loan amount.
“High-cost mortgages” as well as reverse mortgages are sometimes called “certain residential mortgage transactions”
Expanding and Retaining Ownership of Housing through Counseling Act, creates a new Housing Counseling Office within the Department of Housing and Urban Development
The lender is not allowed to provide a consumer with a high-risk mortgage without first obtaining a written property appraisal.
A program have been developed by The Minister of Housing and Urban Development to ensure the protection of current and future residents and at-risk multi-family (5 or more units) properties.
Congress believes significant structural reforms are needed for Fannie Mae and Freddie Mac.
The law fundamentally reforms the country’s financial system and improves consumer protection mechanisms. The powers of the federal banking regulator in terms of limiting the actions of states’ rights have been significantly narrowed. The Office of Thrift Supervision has been abolished, and all oversight powers for national banks and federal savings institutions have been transferred to the OCC. The Trust in Lending Act (TILA) has added a number of restrictions on mortgages and their servicing.
Prohibited are premiums for increased interest (yield spread premium) and other compensation paid to the primary mortgage broker (originator), which are included in the loan amount. Most term mortgages require the lender to determine and document the borrower’s ability to pay by verifying that the borrower is able to service the loan. A ban has been introduced on insurance of risks of mortgage loans, in which the premium is paid in a lump sum, as well as on commissions for early repayment for some types of mortgages.
Provisions are made for the preparation of rules restricting the imposition of unprofitable loans on borrowers (loan steering). In accordance with the law, a special Consumer Financial Protection Bureau is created, which receives the right to regulate certain types of credit. At the same time, the Dodd-Frank Act does not contain provisions that directly limit the level of interest rates.