With as much legislation as there is becoming effective on the 1st of this year, much more throughout this year, and a boatload more on January 1, 2014, you can bet that there will be many unintended consequences. When something bad happens to a group of people, we rush to fix it by passing laws that are designed to fix the problem. Two significant examples of this are currently on the news daily: 1) the horrible killing of the 26 children and adults at Sandy Hook Elementary School and 2) Protection of everyone that was foreclosed on over the last 4 years from the predatory lenders and Wall Street bankers that created the problem. Let’s just focus on #2, predatory lending. The Dodd Frank legislation is enormous and the implementation of it is now rolling out. There are many good things in there for the protection of the general population, but there will be many unintended consequences that were not foreseen by the lawmakers. PHF and most all other Private Money Lenders, or Predatory Money Lenders if you wish, get many calls per month from homeowners in distress that we are no longer willing to help. The reason that we won’t help them is that Dodd Frank has stipulated the terms that we can lend to them on. To be brief, these terms are much closer to bank terms; that is, we have to underwrite much more like a bank would and charge much closer to what a bank would.
Just this morning I got a call from a 1st class 60 year old gentleman that I know and respect. He has retired from a very good career but now has a problem. Big Bank (I am not naming or knocking the bank because they are simply dealing with other provisions of Dodd Frank) has a $100,000 2nd TD on his house which is now all due and Big Bank is unwilling to rewrite the loan for him. He has ample income, has never missed a payment, and has great credit. Big Bank has every right to elect not to rewrite the loan, but now, because of the new laws, virtually no private lenders will do this deal. So if my 1st class 60 year old friend cannot come up with $100,000 very quickly, then Big Bank will be forced to foreclose and this gentleman is out on the street and foreclosed out of $600,000 in equity in the home! This, dear reader, is just the tip of the iceberg.