In the wake of the subprime mortgage debacle and ensuing financial crisis, Congress enacted substantial reforms affecting the home mortgage industry as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Pursuant to Dodd-Frank, the Consumer Financial Protection Bureau (“CFBP”) issued extensive new rules with the express intention of protecting mortgage borrowers from the predatory lending practices that were blamed in part for that economic collapse. As with so many attempts to enact laws to address past problems, however, results have not necessarily matched intentions.
I have written previously in this blog about the consumer mortgage disclosure mandates that were put in place by the CFBP in furtherance of Dodd-Frank, and some of the issues that were reported by those in the industry as a result of those regulations. Recently, I have spoken with a number of home loan brokers about their more recent experiences with these rules. Specifically, we talked about the limits on prepayment penalties imposed on new mortgages by Dodd-Frank and their experiences with those restrictions; while these charges have not been completely barred, the conditions under which borrowers can be obliged to pay such fees in the event that a mortgage is retired early have been sharply curtailed.
These brokers told me that, as a result of (a) the complexity of the conditions that must be met in order to be able to impose prepayment penalties and (b) the harsh punishments that can be meted out for violations of these restrictions, lenders are simply no longer including such provisions in their new mortgages. Instead, in the event a mortgage is paid off early, many lenders are forcing the loan brokers who placed the loan to disgorge their commissions back to the lender. While a number of loan brokers have tried to pass this burden back to the borrower, others are dubious of the legality of such an action in view of the broad scope of Dodd-Frank’s administrative framework.
Given the practical effect of the Dodd-Frank regulations on this particular aspect of residential mortgage lending, it is clear that Dodd-Frank has made a significant impact on this segment of the economy. With the Trump Administration having taken initial steps towards rolling back parts of this regulatory regime, I would like to pose a question to those of my readers who work in this area: What have been your experiences with the Dodd-Frank home mortgage policies? Any of you who are interested in relating your war stories in this area to me, please post them in the comments under this article.
