Is it true that ability-to-Repay rule requires income verification before mortgage approval?

Ability-to-Repay rule requires income verification before mortgage approval

Is it true that qualified Mortgage definition provides safe harbor from legal liability?

Qualified Mortgage definition provides safe harbor from legal liability

Is it true that prohibited loan officer compensation structures that encouraged rate steering?

Prohibited loan officer compensation structures that encouraged rate steering

2010 financial reform

Dodd-Frank Act: key mortgage consumer protections

The Dodd-Frank Act created the CFPB and established new mortgage requirements. Here is what changed for consumers.

Quick answer

The Dodd-Frank Act (2010) was the most sweeping financial regulatory reform since the 1930s. Key provisions: created the CFPB to oversee consumer financial products, established the Volcker Rule limiting bank proprietary trading, required ability-to-repay verification on mortgages, and instituted stress tests for large banks. Subsequent legislation has loosened some provisions for smaller institutions.

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Key takeaways

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Created the Consumer Financial Protection Bureau (CFPB)
Ability-to-Repay rule requires income verification before mortgage approval
Qualified Mortgage definition provides safe harbor from legal liability
Prohibited loan officer compensation structures that encouraged rate steering

The Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) was enacted following the 2008 financial crisis. Several provisions directly affect consumers.

Consumer Financial Protection Bureau (CFPB): A new federal agency that writes and enforces consumer financial protection rules, consolidating responsibilities from multiple prior regulators.

Ability-to-Repay (ATR) Rule: Lenders must make a reasonable, good-faith determination that a borrower can repay a mortgage. This requires verifying income, assets, employment, credit history, debt obligations, and the monthly payment.

Before Dodd-Frank, "stated income" loans (unverified income) and negative amortization products were common. ATR made these largely unavailable for residential mortgages.