How the new lending reform law affects homebuyers

How the new lending reform law affects homebuyers

In the wake of the global financial crisis of 2008, lawmakers in Congress made an effort to ensure that the unscrupulous practices responsible for the crisis and its subsequent Great Recession were less likely to repeat themselves. The Dodd-Frank Wall Street Reform and Consumer Protection Act was the legislative fruit of their labors, tightening lending standards for lenders and borrowers alike.

"The recent Dodd-Frank reform might make it easier for homeowners to obtain alternative credit."

Recently, with the economy having recovered significantly, Congress changed some of these standards in a manner that will be particularly relevant to those currently on the lookout for a new house. It's important for such home-seekers to understand the realities of the law - which have considerable ramifications for alternative credit - so they make the best possible buying decisions. 

Biggest changes affect smaller lenders 
According to the National Association of Realtors, large banks and lending institutions won't see many changes as a result of the Dodd-Frank reform, which President Trump signed into law May 24, 2018. Smaller and medium-sized lenders, by contrast, will likely be affected by the looser mortgage underwriting standards, so long as they don't sell their loans and possess less than $10 billion in assets. This could make them more amenable to approving prospective homeowners more readily, even those with less-than-perfect credit. 

The drop in Home Mortgage Disclosure Act reporting requirements could further increase banks' willingness to lend, as they won't have to report on all their home loans unless they gave out more than 500 of them in each of the last two years. Institutions will spend less on mortgage-data reporting as a result. 

Various effects on credit 
As noted by Trulia, summer is the most popular season for buying and selling homes. And because credit is so pivotal to the homebuying process, especially for those who must finance the purchase via a fixed- or adjustable-rate mortgage, prospective buyers must ensure their credit is in reasonable shape if they want to close a deal this season. But there's more to doing so than simply checking one's score, and Dodd-Frank reform plays a role here.

The law allows consumers to unfreeze or freeze credit as necessary without incurring a charge from any of the Big Three credit bureaus, which can be beneficial when homebuyers need to take some time to get their credit in order. Additionally, it recommended Freddie Mae and Freddie Mac consider adopting alternative credit scoring models for their loans, which will open up opportunities for even more would-be homeowners.