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Will Dodd Frank be Repealed?

Responsible lenders have originated loans to low- and middle-income borrowers with small down payments successfully for more than 50 years. Between 1990 and 2009, there were more than 27 million mortgages with low down payments but without the risky loan features that triggered high default rates. These loans not only helped millions of low- and moderate-income families successfully become homeowners, they also performed well — producing limited losses for lenders, investors and taxpayers.
Consider, for example, the difference between typical subprime mortgages and mortgages insured by the Federal Housing Administration from 2005 to 2007. These loans were made available to borrowers with similar credit scores and debt positions, and for which the down payment was less than 10 percent.
The subprime loans, however, typically contained multiple risky loan features — including no income documentation, prepayment penalties and interest-only payments. In contrast, the FHA loans lacked these risky features. As data from the period shows, the FHA loans performed far better than the subprime loans, with subprime default rates three to four times higher than those for FHA loans made to comparable borrowers.
The Dodd-Frank Act has now banned many of the risky mortgage practices of this subprime lending market. For example, lenders must now document income, and they no longer can charge expensive penalties for early payment or give kickbacks to mortgage brokers for placing borrowers in higher rate loans than they qualify for.
Read the entire Politico article. http://www.politico.com/news/stories/0912/81671.html#ixzz2A9vBbrtG

Many professionals in the mortgage industry are wondering whether the Dodd-Frank laws will hold up if we get a new President in November. It’s no secret that many lending executives are hopeful that Dodd-Frank will be repealed, because they believe that the laws increase the costs on consumers and don’t protect the tax-payers when it comes to being on the hook for defaulting home loans.

According to the Politico, “lenders have closed mortgages to low- and middle-income borrowers with small down payments successfully for more than 50 years.” Between 1990 and 2009, there were more than 27 million mortgages with low down payments but without the risky financing features that triggered high default rates. These loans not only helped millions of low- and moderate-income families successfully become homeowners, they also performed well producing limited losses for mortgage companies, investors and taxpayers.

Consider, for example, the difference between typical subprime financing insured by FHA from 2005 to 2007. These home loans with no money down were made available to borrowers with similar credit scores and debt positions and for which the down payment was less than 10 percent.

The subprime mortgages, however, typically contained multiple risky loan features including no income documentation, prepayment penalties and interest-only payments. In contrast, the FHA loans lacked these risky features. As data from the period shows, the FHA loans performed far better than the subprime loans, with subprime default rates three to four times higher than those for FHA mortgages made to comparable borrowers. Read the entire Politico article.

Posted in Home Financing Articles, Subprime mortgage news.

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