The Dodd-Frank rules are fully in place now, and depending on your point of view or role in the housing market, you may find them helping or hurting your interests. The main components include: • High risk loan types like negative amortization mortgages are now totally banned. • Home buyers must document their income and debt levels. • Lenders must disclose all costs involved in the loan.

1. Dodd-Frank and the Obvious
The Dodd-Frank rules are fully in place now, and depending on your point of view or role in the
housing market, you may find them helping or hurting your interests. The main components
include:
 High risk loan types like negative amortization mortgages are now totally banned.
 Home buyers must document their income and debt levels.
 Lenders must disclose all costs involved in the loan.
Pretty straight-forward you might say. You could even say that these should have been the
business practices used by lenders of their own choice before the crash. Instead they made risky
loans to people who really couldn’t afford to pay them. For many of these lenders it may not
have been that bad of a result, as the vast majority of loans were backed by FHA, Fannie Mae, or
Freddie Mac.
One other rules statements is where I get the title of this article. Lenders must verify the
borrower’s ability to repay the loan. DUH! If my uncle Fred wants me to loan him $600 to buy
a one-way ticket to Nicaragua and he just filed bankruptcy, I may be hesitant to do so. It’s pretty

2. clear that he’s already in deep financial trouble, and he’s leaving the country without a plan to
return. I would say that this constitutes a high risk of default.
Now, I’m not a banker, nor have I studied finance and lending, but some of this is just plain
common sense. The unfortunate thing is that we find this country in a position where we need to
force common sense on some lenders to get the desired result. If you’re in the home selling
business, you could easily take a dim view of Dodd-Frank, as it definitely will make it more
difficult for home buyers to qualify for a mortgage. Of course this means fewer homes
purchased.
These thousands of pages of new rules are definitely influencing the lending pipeline. It’s
obvious with reports of the average FICO score for issued home loans is at the highest level in
history. Though you read that high down payments are keeping buyers out of the market, this
really isn’t as big of an impediment as it seems. There are low down payment loans out there,
but the requirements to qualify are too stringent for many buyers. This isn’t a criticism, as the
goal is to make loans that will get repaid, not foreclosed.
And, as is almost always the case, addition of tons of new rules and paperwork adds to the costs
of doing business. So, disclosing all of the costs of a loan is going to show these added costs,
though I’m sure they won’t be labeled or segregated as regulatory burden costs. The problem
isn’t the costs/fees in the mortgage process, though it does fall on the home buyer. It is a tougher
mortgage climate and a lot of people still smarting from the housing and mortgage crash.
Things will get better, and they’ll get better even with Dodd-Frank. However, it will take some
economic improvement and better employment outlooks for the average buyer. Until then, keep
buying those rental properties, as rents are definitely rising, and demand is growing on the rental
side.