Will more new mortgage rules hurt housing?

Will New Mortgage Regulations Bruise Housing Market?

There have been predictions of tidal waves of regulations coming in the next six months. It will probably be focused on a small percentage of loan applicants.

Mortgage industry insider warns about a stifling regulatory cliff

Back in December, The Washington Times reported that lending to homebuyers in the United States remained little above the depressed levels hit during the recession because banks are still wary about lending because of this tidal wave of regulations that will be coming out this year.

Five years of criticism of banks by politicians, the public, the media and regulators have left the industry averse to taking risks, said David H. Stevens, president of the Mortgage Bankers Association, noting that banks today are willing to make loans only to the wealthiest or most creditworthy borrowers unless the borrower has government backing. “The pendulum may have swung too far.

We’re at a point right now where banks are afraid to make a bad loan,” he said in an interview with editors and reporters at The Times. Federal Reserve Chairman Ben S. Bernanke is concerned about the slowdown in lending and has sought to coax more credit out of banks by driving interest rates on mortgages to record lows, but many overzealous state and federal regulators seem oblivious to the harm they are doing to the market and the broader economy through an onslaught of regulations and enforcement actions against banks, Mr. Stevens said.

Tidal Wave of Regulations

From Mortgage News Daily, the future of the mortgage industry will be bruised by the coming tidal wave of regulations over the next six months.

David H. Stevens, President and CEO of the Mortgage Bankers Association (MBA), told member of the Exchequer Club on Wednesday that  in the 12 months since he last addressed them there had been some progress in clearing the uncertainty of a year earlier and an improving housing market. The first of the rules mandated under Dodd Frank have come out of the Consumer Financial Protection Bureau (CFPB) and the housing market appears to be in a broad recovery.  The new regulations, he said, will help shape the lending environment in which MBA member must operate and homeowners must navigate.

While this won’t guarantee that it will solve the problems of the housing & mortgage markets.  The rules must be thought through and be mindful of the impacts down the road.

90% of mortgages go through GSE and FHA underwriting, so new rules are unlikely to impact the tightening credit.  Unfortunately, it probably won’t loosen it up either.

But Stevens said there is still much more to be done.  MBA members have been flooding the office with questions and concerns about the rule and so far the association has identified three major items that need a closer look.

• The three percent point and fee limit is overly inclusive because it includes affiliated fees and compensation for loan officers.

• The 43 percent DTI limit on jumbo loans will make those loans more expensive in high cost areas. Other attempts to apply an ability to repay standard have completely exempted large balance loans which are necessarily made to higher income households and an exemption based on loan size might make sense.

• The three percent point and fee cap, and the 150 basis point over APOR calculation for the safe harbor, could limit access or increase the cost of lower balance loans.

It’s clear we need a balanced housing policy in the United States.  The United Kingdom banks are exiting the lending business due to risks created by their regulatory environment.

From the Washington Times in December:

Major banks and lenders are exiting the mortgage business because of the high losses from defaults on loans made during the housing bubble and risks of further losses through regulation and litigation, Mr. Stevens said.

He pointed to Metropolitan Life’s recent decision to drop its mortgage-lending division and Wells Fargo’s decision to shut down its wholesale lending channel.

So What’s It All Mean?

Chances are it won’t impact you.  Too find out for sure, contact your loan officer to find out more about your particular situation.

Princeton Capital is a Residential Mortgage Lender, and an RMR Financial company, licensed by the California Department of Corporations under the California Residential Mortgage Lending Act, license #415-0027.

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