Over the past couple of years, the power of the Consumer Financial Protection Bureau (CFPB) has continued to grow. While it remains to be seen what impact the current administration will have on the CFPB, it would be wise for commercial lenders to pay attention to way the lending industry is being changed.
With the Dodd-Frank Act, the commercial lending industry has been scrambling to ensure that institutions fall within the guidelines of the law. While this is not a bad thing for consumers, it does make the industry much more regimented. This, ultimately, has the potential of damaging growth over the long run. Because of Dodd-Frank, commercial lenders will be at the mercy of the CFPB not in both current and future activities. But what exactly does this mean for both lenders and borrowers?
One of the major changes that will affect both lenders and borrowers with these regulations is in data collection. This might not seem like a burden, especially on the borrowers, but the data collection infrastructure that is going to be built in the industry surrounding this need has the potential of costing borrowers on the back end. Commercial lenders are now required to gather demographic information that will identify borrowers as women, minorities, veterans, and other ethnicities. This information will be compiled about the principal business owner.
However, the stipulation is that this information cannot be shared with underwriters or anyone else who might be able to halt the lending process because of discriminatory demographic information. That is, unless they share a non-discrimination clause with a potential lender. The necessary steps that will need to be taken by commercial lenders to gather this information, but then not share it remain to be seen, but this will certainly impact the process in terms of cost and time that it will take to process the application.
The interesting thing about this regulation is that the CFPB has yet to divulge exactly how they plan to implement this regulation. This leaves the industry in limbo. Lenders cannot comply with or adapt to regulations that have yet to be implemented and so it is virtually impossible how this will impact lenders and borrowers in a specific way. The strange reality of pending regulations is that they actually might be changed before they are ever implemented.
What are the future of the regulations that will affect commercial lenders?
While it is very hard to tell exactly what will come from the government, there does seem to be a trend toward tighter regulations on the commercial lending market. Part of this is motivation to protect consumers after the last real estate collapse and part is a general trend toward a regulated lending market across the landscape, as many predatory loans have poisoned the waters. Commercial lenders will have to deal with an ever-changing landscape of pending and enforced regulations. And you can be sure that it will ultimately end up affecting borrowers as well.
Level 4 Funding LLC Private Hard Money Lender
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Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.