With a presidential signature on an executive order, the possible dismantling of the Dodd-Frank Wall Street Reform and Consumer Protection Act has begun. Allies in Congress are lining up behind the President Trump and his administration to blaze a legislative path to make the controversial law a thing of the past.
While many tout the benefits of Dodd-Frank’s demise, others see it as a return to an old guard that tanked the economy in 2008. While politicians tussle over the merits and its future, homeowners could find themselves in precarious positions.
The enactment of Dodd-Frank in 2010 led to the creation of the Consumer Financial Protection Bureau. The CFPB is responsible for administering consumer protection regulations for homebuyers obtaining a mortgage. Safeguards continue throughout the life of the loan.
Homeowners saw immediate benefit from Dodd Frank’s “ability to repay” rule protecting them from common life events that led to them falling behind on their mortgage payments. More significantly, the act also ended controversial policies and practices that maximized profits and minimized losses for lenders.
Pre-financial crisis, abusive and predatory lenders ruled the mortgage industry roost. Effectively treating their customers like kids in a candy store, they handed out loans without considering the homeowner’s ability to repay. The lenders’ only considerations were the equity in the homes being sufficient to make them whole following foreclosures.
Pre-Dodd-Frank, most loan agreements required a large balloon payment at the end of the term. Borrowers found themselves forced into refinancing to keep a roof over their heads. Lenders would then pile on fees and costs on to new loans, generating significant profits. The sum total of their actions resulted in falling prices for all homes, not just those with unsustainable mortgages.
Supporters of Dodd-Frank’s demise see the act as anti-capitalism. They want to remove the CFPB’s power in taking action against lenders accused of unfair, deceptive or abusive acts and practices. Additionally, any tracking of consumer complaints and research on the consumer credit market should cease.
The clash between what many see as free market ideology versus the dynamics of the modern economy is about to begin.