By Every couple of years Congress passes new legislation that affects mortgage borrowers, and each time people think it’s going to bring about huge unrelenting change. Within six months or so everyone typically calms down and gets back to business as usual.
This time, however, it really is different.
You’ve seen the term Dodd-Frank a lot already, and this new legislation really does change things.
Of the many aspects of this new law, it contains very precise language on what mortgage loan officers can and can’t do. In its intent to limit loan officer compensation on mortgages, it has also killed off a number of activities which will affect Realtors and borrowers alike.
One example has to do with rate lock extensions; it used to be that if a loan wasn’t ready in time, or perhaps the house wasn’t ready, a rate lock had to be extended. There’s usually a cost in doing so, and in many cases, a good loan officer would simply agree to pay the extension fee on his own.
Clearly, this was meant to be helpful to the borrower, but Dodd-Frank says the loan officer can’t do that anymore. It seems strange, but it’s true.
I’ll just cite this one example of how things meant to crack down on loan officers can and might backfire and hurt borrowers instead. There isn’t space here to go into everything that Dodd-Frank does, and things like rate lock extensions are just one tiny example of how real estate transactions are going to be affected.
Dodd-Frank makes serious changes to how loan officers can be compensated, and while this doesn’t matter directly to a realtor, it will cause some amount of disruption that could affect them. Loan officers will start playing musical chairs, and while the law has a lot of “one size fits all” components, different interpretations will cause loan officers to start bouncing from one company to another in search of the perfect comp plan.
Another probable side effect is many will just exit the business.
The other impact is that there have always been creative things that good realtors do at the closing table to keep a deal from falling apart. It might be getting a rate lock extension, getting the loan officer to absorb some closing costs, and a number of other moves. The new law prohibits most of these, so this is something realtors will be greatly affected by.
While the new law effects mortgage brokers the most, it will also have an impact on mortgage bankers and commercial banks as well.
The key I think, is to work with regional mortgage banking companies, like ours that are big enough to handle all your borrower’s needs, but also small enough to sit down with you one on one to work through all the new changes.
The first few months will be rocky, but eventually, we’ll all get through it.
And then, as always, it will be back to business as usual.
