Commentary on Dodd-Frank Act, Title XIV - Anti-Predatory Lending Provisions for Residential Mortgage Loans

Stephen Ornstein, Matthew Yoon, and John Holahan

In this Analysis, Stephen Ornstein, Matthew Yoon, and John Holahan, of SNR Denton, discuss the anti-predatory lending provisions of the historic Dodd-Frank Act. Prescribing a host of new standards for residential mortgage loans, Title XIV is one of the most far-reaching provisions of the bill, creating consumer protections significantly more stringent than effectuated in 2009 by the Federal Reserve Board. The authors write:

     Although it has received far less attention than other titles of the Dodd-Frank Act (the "Act" or "Dodd-Frank"), such as those addressing derivatives, "too big to fail," risk retention and the Bureau of Consumer Financial Protection, Title XIV of the Act, which prescribes a host of new standards for residential mortgage loans, is among the most far-reaching of the legislation. Title XIV creates consumer protections significantly more stringent than those promulgated by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") which became effective in October 2009 relating to "higher-priced mortgage loans." The Act greatly increases originator's loan underwriting burdens and will create inevitable incentives for lenders to only offer prime quality "vanilla" loan products. Indeed, the Act will likely have the effect of reducing credit availability to the non-prime lending sector.

     Most of the key provisions of Title XIV are not self-executing. In instances when federal regulators must promulgate implementing regulations, the regulations must become effective no later than 18 months after the transfer of certain functions to the new Bureau of Consumer Financial Protection (known as the "Designated Transfer Date").

     Please be advised that on August 18, 2010, the Federal Reserve Board issued a final rulemaking regarding, among other things, restrictions on loan originator compensation and on steering by loan originators. These rules are similar to, but not as broad as, certain provisions set forth in Dodd-Frank, and will become effective on April 1, 2011. The Federal Reserve Board acknowledges that implementation of the Dodd-Frank rules concerning loan origination compensation and steering by loan originators will be addressed in a future rulemaking with opportunity for public comment.

(footnotes omitted)

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