Even lawyers are saying that the Dodd-Frank Act is complex and complicated. The act was created as a financial regulation after the 2008 recession. Its full name is the Dodd-Frank Wall Street Reform and Consumer Act. What it does is add major regulations to the financial industry with the purpose of avoiding the collapse of major financial institutions, like the downfall of AIG. It also has regulations to help the little guys, also know as consumers. An example is trying to protect buyers from abusive lending and mortgage practices.
The act regulates banks in many ways, one of which is to “break up” a bank if it gets too big. It also requires banks to plan for orderly shut-down if they become insolvent. Dodd-Frank is regulating credit rating agencies, overseeing insurance companies, and rewarding whistleblowers.
It also is having major impact on the real estate industry. Here are some of the ways the act will, or will not, affect real estate investors.
1. A residential loan must meet certain requirements. One example is that the lender must be licensed and working at a licensed company.
2. The borrower must be qualified as to whether or not they can repay the loan.
3. The above regulations, however, do not apply to properties that are held and rehabbed, but not moved into.
4. For institutional lenders, the act has created tight and lengthy credit conditions.
5. The act has created higher pricing and a more complex and rigorous process for loan underwriting.
6. The act’s regulations may affect real estate investors’ ability to access capital.
7. The regs could stop much-needed investment, especially in properties that are distressed assets.
8. Private lenders are not directly affected by the new capital standards. They are allowed to use “common sense” guidelines to their underwriting and to personalize the loan to the investor’s needs
8. Many real estate investors are turning to “rehab lenders” for projects that would not line up with traditional lending criteria.
9. Institutional lenders are being regulated into adapting new credit standards.
10. The U.S. housing industry recovery, and the limitations that are being put on standard lenders makes private lenders a sensible choice when investing in liquid assets.
Even though the Dodd-Frank Act has many investors and lenders in a tizzy, there are still ways to invest in real estate and come out of it with a profit. It may be time to do some research and begin discussions with people in the know about what is still possible in the world of real estate investment. Don’t let what you read about Dodd-Frank keep you from contacting My Rehab Lenders. They can answer your questions and discuss your individual plan with you. In reality, based on the type of venture you are interested in, this could be the best time to take that leap, for you and your bank account.