Congress enacted the Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly known as “Dodd-Frank,” in 2010 in response to the financial crisis of 2007 and 2008. Among the purposes described in the bill’s full title, Congress intended the law “to protect consumers from abusive financial services practices.” This includes provisions affecting the residential mortgage business. Dodd-Frank has led to numerous changes in how banks handle mortgage loans. It has also affected the hard-money lending market in ways that are likely to affect California real estate investments.
“Hard-money loans” are a means of financing a real estate purchase or development without many of the procedural hurdles associated with bank loans. Private businesses and investors offer hard-money loans on a shorter time frame, but with higher interest rates and other expenses. Unlike banks, which focus on a borrower’s ability to repay a loan, hard-money lenders usually look at the value of the collateral when deciding to make a loan. Dodd-Frank has created new obligations for hard-money lenders who loan money for residential properties in some circumstances. It has also potentially made this type of loan more appealing for commercial real estate.
Title XIV of Dodd-Frank is entitled the Mortgage Reform and Anti-Predatory Lending Act (MRAPLA). It amends multiple existing statutes that regulate residential mortgage lenders, including the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and the Home Ownership and Equity Protection Act (HOEPA).