Loosening some of Dodd-Frank’s regulations seem to be the priority for the Trump administration. Though some critics have attributed Dodd-Frank’s lending restrictions to hindering business, most experts agree that it helped the market correct itself.
How has Dodd-Frank helped correct the market?
According to Jacob Inwald of Legal Services NYC, the horror stories we hear about so many regulations being imposed on Wall Street are a misconception. In reality, banks and their balance sheets have been doing just fine.
Mark Zandi, an economist with Moody’s, argues that banks don’t actually want Dodd-Frank repealed since they have spent millions of dollars adapting to all these rules. He says, “There are parts of it they don’t like and they think are overboard, but to be honest, even the Obama administration wanted to make some changes to it, too.”
For homeowners, the creation of the Consumer Financial Protection Bureau (CFPB) has had the most direct impact. The organization is in charge of enforcing laws that govern the mortgage process.
What would loosening up restrictions mean for real estate consumers?
Unless you’re a banker, it’s unlikely that changes to Dodd-Frank will have a huge impact on you. It won’t immediately become easier for borrowers to be approved. Some minor general effects may be evident. For example, regulators including the Federal Reserve may loosen up their rules on lending for multi-family housing units which could lead to a development boom in New York City. This may lead to a boom and a bust.
One worry is that loosening Dodd-Frank rules will lead to more foreclosures. Inwald, who is in charge of foreclosure prevention for clients in Queens, Brooklyn, the Bronx, and Staten Island through Legal Services NYC said there were 34,000 new filings across the state in 2016 though people thought the real estate markets were recovering. He advocates that distressed homeowners and their advocates rely on the mortgage servicing rules administered by the CFPB.
Some speculate that loosening of Dodd-Frank will make borrowing easier. Miller Samuel’s Jonathan Miller, an appraiser and market watcher said: “Theoretically, I think it will help ease credit by reducing over-regulated lending conditions. But it’s a fine line. The mortgage world needs a hybrid between the nominal regulations of the credit/housing bubble era and a reduction of excessive regulations today.
Minor changes could be positive, providing access to more potential buyers who struggle with the highly strict, lending guidelines.
Summary?
Many experts agree that Dodd-Frank has played a major role in helping the market correct itself. Market sentiment lends us to believe that a loosening of these restrictions could have a variety of both positive and not so positive effects.
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