Is the Consumer Financial Protection Bureau (CFPB) really on its way out the door? The CFPB was part of the massive Dodd-Frank Wall Street Reform and Consumer Protection Act introduced in 2010, which affected the entire credit industry from credit cards to mortgage loans to settlement procedures. As it relates to the mortgage lending industry and appraisal management companies (AMC’s), it could very well mean more buyers can qualify for a home loan, increasing the demand for property appraisals. But, is Dodd-Frank really dying?
If the current Congress can get the newly signed CHOICE 2.0 bill through the House and ultimately signed by the president, then yes, the CFPB as we know it today will be history and replaced by what is being referred to as the Consumer Law Enforcement Agency. Dodd-Frank’s far reaching provisions included protection for taxpayers from bailing out banks again, like they did back in 2008. In addition, the CFPB created the notion of the Qualified Mortgage (QM) program which changed the way mortgage companies approved loans. The QM program was an attempt to standardize the credit industries and valuation support services needed to complete a loan application – including appraisals.
By adhering to the QM provisions lenders were offered certain legal protections in exchange. A mortgage could receive QM status if a loan program did not extend beyond 30 years in term, was fully documented to verify the ability of a borrower to repay a debt, and had no balloon payments. The result has been an overall higher quality of loans being approved. However, while QM was viewed as helping to shore up the mortgage industry, tightening lending guidelines meant fewer people could qualify for a home loan.
The changes introduced within the CHOICE 2.0 legislation now requires Congressional approval before taking any action against any financial institution as it relates to credit, as well as placing additional restrictions on the CFPB’s ability to regulate banks, credit unions, and mortgage lenders. If this legislation is ultimately signed by the president, it could mean more people might qualify for a home loan and lenders will have more authority to approve a mortgage and still have it eligible for sale in the secondary market.
So how will getting rid of the CFPB and replacing the bureaucracy with the Consumer Law Enforcement Agency directly affect the appraisal industry? There really isn’t anything specifically in the bill that changes the way property appraisals are being ordered and appraised; it’s just with the guidelines being pulled back it can open the way for home ownership for those who would otherwise not have qualified. In turn, it could mean an influx in appraisals requested, which is a welcome sight for AMC’s and especially appraisers themselves.
By reducing or eliminating the various provisions included in Dodd-Frank two things will happen: the CFPB will no longer exist, and more home loans can be made. For the regulatory weary credit industries, these are good things.
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