Reeling-in Dodd-Frank Means More Building
During the recession, the CFPB (Consumer Financial Protection Bureau) created the Dodd-Frank Act to protect the American financial system from future bank collapses and to make the lending process more transparent for the public. Some of the “protections” put in place created a heavier burden on smaller to mid-sized banks than on the larger banks. The smaller and mid-sized banks are the ones that do a majority of lending to smaller home builders. Small and mid-sized banks had to pass “stress tests,” which prevented banks from being able to do small scale construction loans.
In today’s real estate market, where the inventory of homes is very low across the entire country, new construction is badly needed. Not only is inventory low, but household formation is exceeding the housing stock that we currently have.
Reeling-in or rolling back some of the Dodd-Frank Act, allows banks to lend to builders more easily and should spur more development. Lawrence Yun, the National Association of Realtors (NAR) chief economist, says that the home building industry has been dominated by large corporations under Dodd-Frank. Now, “small time homebuilders will have better access to capital to build homes.” This does not mean that banks will start lending money to low credit people again. It only means that more loans to builders will be available.
The rules governing the closing disclosure in the Dodd-Frank Act will remain intact. Many lenders have appreciated the transparency that the Closing disclosure rules create. The rules force lenders to provide a Closing Disclosure up to 3 days before a closing takes place. The fees are not a surprise at the closing table like they used to be. A home buyer even gets an estimate of all of the fees within 3 days of applying for the loan as well.