New Laws Put in Place in Response to the Housing Bubble

The Housing Bubble

One of the outcomes of the housing bubble and subsequent crisis is that legislatures are becoming more concerned with homeowners rights and the overall state of the mortgage industry. Numerous cases prior to the 2010 Dodd-Frank act illustrated oversights, miscommunications, and misunderstandings between home buyers and lenders. One of the root causes behind the bust was that buyers were signing documents without fully understanding the long-term implications of the loan. After a few years, they discovered they could not continue to make ballooning home payments.

Improvements Due to the Dodd-Frank Act

Following the Dodd-Frank act, the Bureau of Consumer Financial Protection has proposed regulatory changes under the Real Estate Settlement Procedures Act and the Truth in Lending Act. The goal of these changes is to ensure that home buyers are better informed regarding all financial aspects of a mortgage. Most specifically, the changes will allow home buyers to see more accurate estimates regarding the total cost of their home and where those costs are.

The regulations are currently in review, but if passed they will address several other areas that are commonly a problem area for lenders. First, billing statements that detail interest, principal and other payments will be mandatory and simplified for ease of review. Lenders will be required to do all of the following:

• Process and post payments in an accurate and timely manner
• Follow certain guidelines for resolving issues with financing
• Better manage mortgage documents
• Deliver pay off statements in a timely fashion upon request

Preventing Forced Mortgage Insurance

One area that may be of interest to many homeowners is a regulation regarding forced mortgage insurance. I have heard from numerous homeowners about mortgage companies who are quick to force their own insurance onto buyers when it appears the homeowners do not have coverage. Not only is this insurance much more expensive than what a homeowner can normally obtain, but in many cases there is valid coverage in effect. The new regulations will require lenders to send at least two specific notices regarding insurance issues prior to hitting a borrower with increased monthly payments due to a forced insurance plan.

Improvements in the Mitigation Process

Another change the Bureau of Consumer Financial Protection would like to see has to do with mitigation processes. Buyers who are in trouble with their mortgage need to be able to communicate consistently with the lender. The new regulations would call for specific mitigation processes, prompt communication and will encourage lenders to make well-trained staff available to help borrowers remediate their loans. Although this might sound like an expensive requirement for lenders, it may actually be a step in the right direction for all involved.

A Brighter Future

New laws that create more informed home buyers will help to ensure that individuals are buying houses they can afford. Strong communications and proper procedures may reduce the chance of foreclosure and strengthen the housing market. A stronger market will decrease the number of owners who are upside down on their homes and bolster the financial situation for many.

Obviously, a few new regulations are not going to offer a slam dunk win that rescues every homeowner in a desperate situation. However, knowledge is one of the most powerful things any home buyer can wield and forcing lenders to ensure buyers are educated is a great way to create strong transactions in the future.