President Signs Sweeping Reform Into Law, Implementation Left to Regulators

President Obama signed the the Dodd-Frank Act, the most sweeping financial reform since the Great Depression on Wednesday.

“With this law, we’ll crack down on abusive practices in the mortgage industry,” said the President during the bill signing ceremony.  “We’ll make sure that contracts are simpler, putting an end to many hidden penalties and fees in complex mortgages so folks know what they’re signing.”  Adding, “the law is designed to make sure that everybody follows the same set of rules, so that firms compete on price and quality, not on tricks and not on traps.”

Wednesday marked the official end of a hard-fought legislative battle, but just the beginning of implementing the new law.  The American Bankers Association argues that it contains a tsunami of new rules and restrictions for traditional banks that had nothing to do with causing the financial crisis in the first place.

“Implementation of this legislation will be challenging for regulators,” said Edward L. Yingling, ABA president and chief executive officer of the ABA.  “The result will be over 5,000 pages of new regulations on traditional banks and years of uncertainty as to what the massive new rules will mean. The impact of these rules will be very real and will be felt not only by banks, but by consumers, businesses and the broader economy.”

The law creates the Consumer Financial Protection Bureau, which has the independent authority to write and enforce rules for consumer lending in mortgages, credit cards and other financial products.  The Bureau has the authority to issue regulations, orders, or guidance that apply to reverse mortgage products.

The new Bureau is required to conduct a reverse mortgage study to determine any deceptive practices and figure out whether suitability standards are necessary.  It will also determine whether additional safeguards are needed to protect consumers from being sold reverse mortgages to fund inappropriate annuities, investments, and other financial products.

The broad language of the bill makes it very difficult for the industry to anticipate what is coming.  When the new regulations will be implemented isn’t clear, but some estimate it could take as long as 18 months.

“MBA will work to ensure that the new rules are workable for lenders, don’t stifle innovation and do not negatively impact the ability of qualified borrowers to secure mortgage credit,” said Robert Story Jr, Chairman of the Mortgage Bankers Association.  “We also look forward to helping members of the House and Senate identify issues and fixes for a technical corrections bill.”

The National Reverse Mortgage Lenders Association didn’t respond to our request for comment.

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