Dodd-Frank reform could make it easier to get a mortgage
By RACHEL WITKOWSKI
May 31. 2018 9:38PM
President Donald Trump signs H.J. Res 41, which disapproves a rule mandated by the Dodd-Frank legislation in the Oval Office of the White House on Feb. 14, 2017. (Olivier Douliery/Abaca Press/TNS)
It should be easier for you to get a mortgage now that President Donald Trump has signed legislation that will lift lending restrictions on community banks.
Congress last week voted in favor of rolling back Dodd-Frank banking rules, and Trump signed it. The reforms will ease some of the mortgage laws from the Dodd-Frank Act of 2010, a massive financial law enacted in response to the financial crisis.
Thanks to the new law, more homebuyers are likely to get approval for a mortgage from their local community bank or credit union.
"Any changes to soften the lending aspects will make it easier for borrowers to get loans," says Rick Sharga, executive vice president of Ten-X, an online real estate marketplace.
Here's the problem
Many lenders say the mortgage laws have become too restrictive for them to make mortgages outside of the so-called Qualified Mortgage rule. The rule is based on your ability to repay the mortgage by requiring that your debt does not exceed 43 percent of your income.
But there are very specific requirements when proving your income. The task gets trickier if you're a business owner, for example, and don't have consistent income flows.
"Lenders, particularly retail banks, have just stopped taking on any risk at all," Sharga says. "Getting those smaller lenders back into the game could have a material impact on the housing market."
The new changes will allow community banks and credit unions to offer mortgages outside the typical Qualified Mortgage rule so long as they don't sell that mortgage but keep it in-house.
By holding that mortgage on the books, it would be deemed a Qualified Mortgage.
The carve-out would apply to institutions with less than $10 billion in assets.
Many lenders think this change will allow more community lenders to offer mortgages. It will also be helpful for homebuyers, when mortgage rates are rising but still low.
It's unclear how much of an impact the change to the mortgage laws will have on the housing market. A large portion of homebuyers already meet the requirements within the Qualified Mortgage rule. The Urban Institute says the Qualified Mortgage rule has had "little impact" on credit availability, though there are fewer mortgages being offered for under $100,000.
Congress' move received praise from David Stevens, president and CEO of the Mortgage Bankers Association.
"I want to commend the House of Representatives for joining the Senate and passing this bill, which will protect consumers and provide greater access to mortgage credit," Stevens said in a statement.