The financial regulatory reform that is taking effect will have an impact on everyone including borrowers and mortgage lenders in many different ways. The Bill is 2319 pages long, and will cover many areas that will affect everyone in the months to come. Not everything is covered in our synopsis of the bill, but this will give you an overview on changes you can expect to see over the next couple years.
This bill is to aid with the changes that are being made to mortgages. This will help consumers to avoid high fees, and do away with bad loan terms. Prepayment penalties will also no longer be allowed.
Before a borrower will be able to get a loan, mortgage brokers and lenders will be required to determine if the borrower can actually pay back the loan by checking all borrowers income, and assets prior to approving the loan. The stricter verification process will make it more difficult for self –employed individuals or those who earn their salaries from commission to obtain a loan or qualify for a loan. On the other hand, it will give borrowers more leverage on contesting foreclosures if they are approved for a loan they cannot afford.
The bill will also prevent lenders from offering mortgage brokers bonuses or incentives for giving unfavorable loan terms to borrowers (like increased interest rates). This will have an effect on mortgage brokers (who are the middle men) by eliminating YSP (Yield Spread premiums-this is where the mortgage broker gets the loan at a lower interest rate, and sells the loan at a higher rate to the borrower, keeping the profits) With this being eliminated, they will lose one of the ways they make their money since the mortgage brokers make money 2 different ways, by YSP, and origination fees (% of loan size, usually fixed rate). Since the YSP’s will be eliminated, the only other way they will be able to make their money will be by increasing origination fees. This may mean borrowers will be avoiding the use of mortgage brokers more, and going directly to lenders.
With mortgages becoming less profitable to the lenders, it will also become harder for a consumer to obtain a loan, (lenders are already starting to require higher down payments). Anyone denied a loan or credit, will be eligible to get a free credit report through one of the major credit unions.
As far as bank bailouts go, the new bill should decrease the amount of money spent by the taxpayer if the bank goes out of business. If a financial institute fails, the FDIC (Federal Deposit Insurance Corp) will borrow from treasury to pay the costs of liquidation and get the money back by selling the financial institutions assets. Also, if the financial institute fails, the FDIC will also have the ability to take back any compensation that has been given to the senior executives for 2 years prior to the institutions failure.
The bill will offer financial literacy study to teach Americans about fees, liens, savings and loans. It will also require that all disclosures are to be made to investors prior to them investing any money into the institute. The bill is not 100% perfected, but it should help the economy. The legislations are not expected to go into effect for another 12-14 months.