President Trump signed an executive order Friday that directs the Treasury Secretary, in part, to begin a review of the Dodd-Frank Act. Although there are no immediate changes proposed, the review will undoubtedly result in changes to financial oversight.
Many will agree some of the changes in the bill, which took several years to evolve, have been beneficial to buyers of real estate. It introduced new accountability for lenders to provide good-faith estimates of loan fees that now need to match the actual fees collected at the closing of a real estate transaction. The new closing statements are easier for consumers to read and understand. Some say the act has restricted the types of loans that may be better for consumers than those currently available.
According to Realtor magazine:
“Americans are going to have better choices and Americans are going to have better products because we’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year,” Gary Cohn, White House National Economic Council director, told The Wall Street Journal. “The banks are going to be able to price product more efficiently and more effectively to consumers.”
President Trump is to order a sweeping review of the Dodd-Frank Act rules, which will include a close look at how the government supervises big financial firms that aren’t traditional banks, Cohn said. Existing regulations under Dodd-Frank have made it too difficult for banks to lend and has limited consumers’ choices of financial products. Paraphrasing Cohn; the Trump administration also is planning to overhaul mortgage finance giants Fannie Mae and Freddie Mac, which have remained under the government conservatorship since the financial crisis.
Fannie Mae and Freddie Mac are government-sponsored companies that participated in the mortgage crisis. They may have even made it worse. But they didn’t cause it. They did get caught up in the banking practices that created it.
The Dodd-Frank Act created the Consumer Financial Protection Bureau to monitor lending practices to prevent another mortgage crisis that led to the collapse of the housing market. Banks and hedge funds made so much money selling mortgage-backed securities, they soon created a huge demand for the underlying mortgages. That’s what caused mortgage lenders to continually lower rates and standards for new borrowers.
Subprime borrowers are those who have poor credit histories and are therefore more likely to default. Lenders usually charge higher interest rates to provide more return for the greater risk. Generally, that makes it too expensive for many subprime borrowers to make monthly payments.
Perhaps the act needs another look since banks now have greater reserves than ever before. Some believe these reserves will prevent another meltdown. We hope we have all learned that some regulation is necessary. No one wants to repeat the financial mess and housing crisis of 2008. Changes will be made but caution is needed.
Trust an expert…call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.
Kim Cooper is a real estate broker and the spokesman for the Coeur d’Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d’Alene Association of Realtors, 409 W. Neider, Coeur d’Alene, ID 83815 or by calling (208) 667-0664.