Dodd-Frank Consumer Protection Act is Law
President Obama singed the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010. The humongeous bill increased oversight of financial institutions and creates the new Consumer Financial Protection Bureau to regulate and help Americans and their financial interests.
The new act and agency change the regulations regarding subprime and other nonstandard loans. The law curbs "yield-spread premiums" and other financial incentives that banks gave to mortgage originators for steering borrowers into certain loans. More plainly stated, people who get you to sign on to bad loans get less kickbacks from the lenders. The law also restricts prepayment penalties that kept you locked into bad loans. However stated income loans are still allowed. That means you don't have to prove you have the income, just say so.
But now lenders who approve such loans are required to make sure borrowers can pay them back or face penalties. They can not package the loans into securities and try to sell them away, like before, because they must retain 5% of the credit risk.
The new Consumer Financial Protection Bureau is housed in the Federal Reserve, but authorized to independently regulate predatory or misleading lending. the bureau will oversee the Real Estate Settlement Procedures Act and the Truth in Lending Act.
Fannie Mae, Freddie mac, and the Federal Home Loan Banks still remain unchanged. Their overhaul is scheduled to begin January 2011. If you are buying a home today, you have more protection than ever to make sure you don't get ripped off. If you need a lender, familiar with the new laws and regulatory bodies...AskRey.