The Law That Protects Borrowers From Overspending

[Jarrod Thomas]

We all know that the Dodd-Frank Act was put into place as a sort of safeguard for borrowers to be able to avoid home default. The Ability to Repay Rule is one of the more well-known provisions of the Dodd-Frank Act, with the end goal of making sure borrowers don’t buy homes they can’t reasonably afford. There is another provision of the Dodd-Frank Act that you should know about: the Anti-Steering Protection Act.

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This rule prohibits lenders from monetizing on the conditions or terms of the loan type they sell you. Essentially, lenders can’t make money by “steering” you towards a loan that costs you more money. You won’t be able to give your lender any compensation that varies (other than principal) depending on the loan type, because this is now illegal. In other words, your lender is now acting more like a grocery store clerk than a car salesman.

This is a huge source of protection for borrowers. However, you still need to be made aware of several factors:

• · The loan officer is allowed to give you different loan options such as: the loan with the lowest interest rate, the loan with the lowest amount for origination points, and the loan with the lowest rate you qualify for without taking into consideration fees and costs. You’ll have to sift through all of the options, but you can rest assured that your lender is not personally profiting off these various loan types.
• · You’ll have to shop around a little harder for a lender who can give you exactly what you need. Because lenders aren’t personally profiting from different loan types, they may or may not be concerned with the overall details of the loan. You’ll need to present them with all the details of your unique situation so you can discuss it together.

 

Overall, make sure that you always shop around for a lender. Even though the Dodd-Frank has made leaps and bounds towards protecting borrowers and ensuring borrower preparedness, you still need to make sure you’re working with a lender that you trust.