In the wake of the worst financial crisis that our country has seen in decades, Congress is preparing to overhaul the financial services industry with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"). The 2,300 page Bill, having been signed by the House and Senate, awaits signing by President Obama--which appears to be a foregone conclusion.
The Act, which will create an independent financial agency ("watchdog") known as "The Consumer Financial Protection Bureau", contains numerous provisions designed to regulate credit agencies, banks, hedge funds, mortgage brokers and credit unions-all in the name of consumer protection.
Since my law practice focuses on real estate and business law, I am particularly interested in how the everyday homebuyer is going to be impacted-or better yet, protected-by this comprehensive legislation. As we have come to know all too well, many people who have lost their home to foreclosure or are seriously delinquent in their mortgage payments were approved for a mortgage that they simply could not afford. Lenders, mortgage brokers, and others in the financial services industry lined their pockets at the expense of single-mothers, single-income households, and borrowers that didn't have the income, savings and net worth to support the loan that they were given.
So, how are these groups-prime targets for lenders in recent years-going to be protected in this new era of expanded government oversight of America's financial system?
Part of the answer is mortgage reform:
1. The Act will establish a federal standard for all home loans. All lending institutions will have to insure that a borrower meets the standard and can repay the loan.
2. Unfair lending habits, such as steering borrowers into more costly loans, will be prohibited.
3. Lenders and mortgage brokers who don't comply with the new federal standards will be held financially accountable. Borrowers will receive certain protections from foreclosure if these standards are violated.
4. Additional disclosures will be required to borrowers. Specifically, lenders will be required to disclose the maximum amount that a borrower could pay on a variable rate mortgage.
5. An Office of Housing Counseling will be established to counsel home owners and renters.
6. Pre-payment penalties in mortgages will be prohibited.
This legislation is very comprehensive and will increase the government's involvement in the way our country does business; this obviously makes many people and groups that serve the financial industry very uncomfortable.
However, I have heard horror stories from too many clients that have lost their savings, retirement, and home as a result of the economy's collapse. These people needed more information about their loan products, more guidance about their financial ability to afford their loan, and more laws to stop unscrupulous lending practices from lenders.
We can only hope that the hard-working families who strive to achieve the dream of home-ownership in the future will be better served under this new legislation...if the government would only work on how to better help those who already suffered the fate of losing their home.