Mortgage Reform: Potential Impacts of Provisions in the Dodd-Frank Act on Homebuyers and the Mortgage Market

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act) is intended, among other things, to reform residential mortgage lending and securitization practices that contributed to the recent financial crisis. The act provides some liability protection for lenders originating mortgages that meet nine specified criteria, as applicable, associated with a borrower's ability to repay ("qualified mortgages"). The act also requires securitizers of mortgages not meeting separate criteria associated with lower default risk to retain at least 5 percent of the credit risk, though federal rulemaking agencies may vary this amount. The act directed GAO to assess the effect of mortgage-related provisions on the availability and affordability of mortgage credit and to issue a report by July 2011, but federal agencies are still developing implementing regulations. This report discusses the potential impact of the act's (1) qualified mortgage criteria, (2) credit risk retention requirement, and (3) provisions concerning homeownership counseling and regulation of high-cost loans.