In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Barack Obama in response to the financial crisis and recession that hit the economy of the United States. The act was designed to protect customers against predatory mortgage lenders, payday lenders, banks, and credit card businesses by providing financial protections and other precautions.
Since its inception, Dodd-Frank has altered many of the previous laws governing traditional mortgage financing. Despite not being expressly targeted by Dodd-Frank, the private lending industry, also known as “hard money loans,” is subject to some of the law’s provisions.
The title XIV of Dodd-Frank, called the Mortgage Reform and Anti-Predatory Lending Act (MRAPLA), amends existing statutes while placing additional requirements on Lenders. For instance, Subtitle A of MRAPLA dictates the compensation a loan officer can receive on a residential mortgage loan. However, since Dodd-Frank focuses on protecting the consumers, it mostly covers residential mortgage lending and leaves out transactions involving business and commercial properties. As a result, this steers more private lenders away from residential properties into commercial loan space.
Buyers who purchase a home to lease it are likewise exempted from the regulations of Dodd-Frank. Although Dodd-Frank regulations do not encompass all hard money transactions, some residential hard-money mortgages, such as purchase bridge money or residential construction loans, could expose originators to certain obligations under Dodd-Frank.
Private lenders need to be familiar with the Dodd-Frank and its requirements to abide by all its provisions when providing a loan to consumers on residential property.
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