Dodd-Frank Rewrite Could Improve Local Mortgage Lending

  • March 20, 2018

CMG Image

Last week, the Senate passed the most significant Dodd-Frank reform bill since the original legislation was enacted in 2010.  The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed to curb predatory banking activity and restore economic normalcy following the Financial Crisis.  However, since economic recovery, Dodd-Frank has not been changed despite the expensive regulatory burden it imposes on many financial institutions, especially smaller banks and lenders.  The bill passed with some bipartisan support and will now move on to the House of Representatives. 

The Senate’s bill specifically addresses regulatory relief for smaller institutions with up to $10 billion in assets.  Under Dodd-Frank, financial institutions of all sizes face the same restrictions, though the cost of implementing these restrictions is more significant for smaller lenders.  Under the new bill, mortgages originated by smaller lenders will not face the strictest federal underwriting requirements, though they will still have to meet other conditions. 

Under Dodd-Frank, a “qualified mortgage” required the borrower’s loan to satisfy numerous guidelines to protect the lender if the borrower later argued they were sold a risky mortgage.  Some requirements include a limit on the income to loan ratio, a reduction in upfront points and fees, and the prohibition of interest-only, negative amortization, and balloon payment activity.  Under the new bill, the loan would not have to meet all of those underwriting requirements in order for the lender to be legally protected.  However, the lender will have to keep the mortgage in its own portfolio instead of selling to investors, thus assuming the risk.  Since the bank will be responsible for the credit risk, they will likely perform the due diligence to make sure the loan is underwritten responsibly.  Supporters of the proposed legislation believe the reduction in requirements will make it easier for some home buyers to secure mortgages.  The legislation will especially benefit home buyers in less populated rural communities, where larger lenders may not operate. 

The Senate passed the bill with a vote of 67 to 31, including supportive votes from 17 Senate Democrats.  The GOP-majority house may have favored more drastic rollback, but last year such a bill died on the Senate floor, due to a lack of bipartisan support. 


Sources: Consumer Financial Protection Bureau, CNBC, CNBC

Lourdes Best
Loan Officer
NMLS # 341095
Branch NMLS # 1647193

Lourdes Best

PHONE: (910) 684-4924

CMG Image
© CMG Financial, All Rights Reserved. CMG Financial is a registered trade name of CMG Mortgage, Inc., NMLS ID #1820 in most, but not all states. CMG Mortgage, Inc. is an equal opportunity lender with corporate office located at 3160 Crow Canyon Road, Suite 400, San Ramon, CA 94583 888-264-4663. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act No. 4150025; AK #AK1820; AZ #0903132; Colorado regulated by the Division of Real Estate; Georgia Residential Mortgage Licensee #15438; Illinois Residential Mortgage Licensee; Kansas Licensed Mortgage Company #MC.0001160; Massachusetts Mortgage Lender License #MC1820 and Mortgage Broker License #MC1820; Mississippi Licensed Mortgage Company Licensed by the Mississippi Department of Banking and Consumer Finance; Licensed by the New Hampshire Banking Department; Licensed by the NJ Department of Banking and Insurance; Licensed Mortgage Banker – NYS Department of Financial Services; Ohio Mortgage Broker Act Mortgage Banker Exemption #MBMB.850204.000; Licensed by the Oregon Division of Financial Regulation #ML-3000; Rhode Island Licensed Lender #20142986LL; and Licensed by the Virginia State Corporation Commission #MC-5521. CMG Mortgage, Inc. is licensed in all 50 states and the District of Columbia. Offer of credit is subject to credit approval. For information about our company, please visit us at www.cmgfi.com. To verify our complete list of state licenses, please visit www.cmgfi.com/corporate/licensing and NMLS Consumer Access (www.nmlsconsumeraccess.org).