FIN 332 March 8 Extra Credit

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Murray State University *

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332

Subject

Economics

Date

Apr 3, 2024

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docx

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Uploaded by MinisterComputer17630

Financial Reform and Mortgage Lending in Americas Heartland This past week, economists Timothy Bianco, Gary Cornwall, and Beau Sauley gave a presentation discussing their current research study covering the affect the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) had on the residential mortgage lending rates in Ohio. The Dodd-Frank Act was passed in order to promote financial stability in the U.S. and improve any accountability in the financial systems to protect American taxpayers by working to eliminate abusive financial service practices and end bailouts. I believe this is great idea to assist consumers in the mortgage world to work to successfully support their down payments within the system and reap the most benefits with the least amount of risks. Nevertheless, I still think there are certain economic factors and effects that could have stemmed from such an act that are important to outline and understand to possibly change the approach of the Act. This was one of the most significant laws under the Obama Administration that was put in place, but was quickly rejected after the Trump Administration came into Presidency. This helps outline the two different perspectives of political parties and how their approaches differ based on the economic outcome regarding the Dodd-Frank Act. The economists focused on only two of the Title Acts, Title I: Financial Stability, and the Title XIV: Mortgage Reform and Anti-Predatory Lending Act. This allowed them to truly focus in on exactly the goals of their research so they could come to a relatively solid conclusion. Within the Dodd-Frank Act, there are three main focal points, the first being regulatory reform and alignment. This ensures there are more restrictions on the mortgage commissions, so it required lenders not to steer borrowers to unfavorable loans. I found this to be a very important aspect, for buying a house is not a simple purchase. Having additional assistance in your back corner working to reduce and ensure you are making the most productive purchase based on your financial abilities is highly reassuring for future purchases I am required to make. The second is for mortgage reform and anti-predator lending with tightly underwrites standards for all lenders to a no-bias in lending. I also found this to be an interesting take, for this ensures loans can be reasonably repaid by the borrower granting better abilities to save money on interest and to elevate ones current standings in the mortgage market. The final aspect of the Dodd-Frank Act was the enhance the safety and soundness of the financial system. I feel this is a great intended goal for both consumers and lenders within the market; however, I do not believe there is a way for a single Act to reduce all possible issues and risks for some are simply unpredictable or unavoidable. The presentation then focused more into the specific effects the Dodd-Frank Act had on the market outcomes. A quick understanding we all gathered was that we know very little about the affects which sparked the intentions behind this research project. One of the main sources of focus was the comparison between the Big 6 Banks in comparison to the other smaller banks and how they either were impacted or adjusted their approaches to the mortgage market based on their amount of financial loans given after the Dodd-Frank Act came in effect. Initially, there was a focus on the banks that were riskier and more systematically important. This allowed for more mortgage transaction date and changes in all regulations. Nevertheless, they used the Loan-to-Value Ratio to depict a measurement of the value of a specific property to the amount of mortgage appraised with it. Their graph allowed them to come to a solid conclusion that the Big 6 banks completely changed their approached to lending lower after the Act while the small banks continued their same approach on lending. This was something they found very promising for their research, as it outlines the changing types of loans given for houses that are financially smaller in proportion. Nevertheless, there could be an argument that the Dodd-Frank Act was not the cause of such a change, but it was simply the market effects coming into play and the banks made the realization that there needed to be a

more immediate change. The ideal goal of a bank loan lending is 0.8. meaning a 20% down payment. However, after the Dodd-Frank, there was a 4.6% decrease in the lean amount from the Big 6 banks. This is something that should definitely be outlined and researched further to see how this directly affects the financial stability and economic effects. One question that I thought of was “Would the Dodd-Frank Act be more pleased that banks are lending less money to consumers or would they have rather preferred an increase in the amount of loans given?” I cannot come to a direct conclusion of this question, for there are so many factors that contribute to such an outcome; however, I feel this study gave a great introduction to a question that was unanswered and I am intrigued to see how with more in depth data the what results on the bank loans and the mortgage market will display towards future economic approaches.

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