Regulators to Craft New Mortgage Lending Standards by January

[Corey Dutton]

As most people in the mortgage lending industry well know, the Consumer Protection Act under Dodd Frank has made it more difficult for consumers to obtain credit by trying to “protect” them. By placing expensive regulatory requirements on mortgage lenders, many mortgage companies have closed up shop and private and hard money lenders are now refusing to lend to consumers anymore.

The Consumer Financial Protection Bureau, created by Dodd Frank, is set to release a new set of mortgage lending standards by January. The Bureau’s Chief, Richard Cordray, says he is carefully weighing all factors that may undermine the housing recovery by making it more difficult for consumers to obtain credit. Mr. Cordray hit the nail on the head when he said, “It doesn’t do anybody any good for us to develop an elaborate set of protections if nobody’s going to then lend money to consumers.”

But I think this may be, “one day late and one dollar short,” as the old saying goes. These new regulations have already made it nearly impossible for a consumer, who is about to lose his or her home, to save the home by obtaining a non-bank, private or hard money loan. In order to protect themselves, the majority of hard money lenders won’t lend to consumers anymore, but only to business entities on investment properties.

The purpose of Dodd Frank and the Consumer Protection Act is to put an end to the risky lending practices that fueled the financial meltdown. But wasn’t it the derivatives on Wall Street that actually fueled these risky lending practices? And wasn’t it the sub-prime loans coming from the “banks” and not “private money lenders” that are the risky loans the Bureau is referring to? What is being done to limit the use of derivatives and credit default swaps that caused this whole thing?

By Corey Curwick of Private Money Utah on September 14, 2012