Is Dodd-Frank Good for Banks and Mortgage Lenders?

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The current Administration is talking about making changes to modify or completely replace the Dodd-Frank Act.

However, a new report out of Washington says it’s doing just fine.  According to the FDIC, in the 4^th quarter of 2016, banks reported profits of $45.6 billion. This is up compared to the period just after the 2008 crash of only $21.4 billion for the 4^th quarter of 2010.  The crash spawned the implementation of Dodd-Frank.

In fact, over the past six years under Dodd-Frank, bank quarterly profits doubled. Figures released by the MBA show that the foreclosure rate dropped to a 30 year low in the fourth quester of 2016 to 0.28%.

That would seem to be good news for banks, non-banks, the housing market and the economy. So, why would anyone want to tinker with Dodd-Frank?

The answer is: Because this is only half the story. Banks are doing well.  But, not necessarily from increased mortgage lending.

In fact, after the crash, many banks reduced or exited mortgage lending, especially FHA lending. Mortgage lenders did fine with refinancing opportunities.

They did well as long as rates were kept low due to the poor economy. Now, with the economy improving, rates are rising and the refi’s are going away.

Unfortunately, the homeownership rate has declined to its lowest level in years. Fewer people are buying homes and, because of Dodd-Frank, it is more difficult, under the new rules, for lenders to make new mortgages for homebuyers.

Yes, foreclosure rates are down because fewer people are getting new mortgages and those doing so must be highly qualified. What about everyone else?

Hey, maybe that’s the way it should be:

• Only the well qualified, by Dodd-Frank standards, get the mortgages
• Lenders struggle with increased regulation; making it difficult to lend
• Needy consumers are shut out of the market
• All the while, the big banks continue to make big profits.

If that’s what you want, then let’s leave Dodd-Frank alone.

On the other hand, if you want better, then let’s work with the new Administration to come up with a better plan. Let’s find a plan that benefits the consumer as well as the banks and lenders.

Sometimes change is good… if you keep an open mind.

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.