Mortgage lenders are acutely aware of what sparked the 2008 financial crisis. The publication of a rule requiring lenders to confirm a borrower’s ability to repay is the start of an effort by U.S. regulators to reshape the housing market. The Consumer Financial Protection Bureau is set to follow the rule on mortgage underwriting with a second mortgage-related rule, this one on servicing, at a hearing in Atlanta on Jan. 17.
Balanced reform is essential to revitalizing the flow of capital to the private securitization markets and increasing the availability of credit to American consumers. Consumer groups that fought for the creation of the CFPB in the Dodd-Frank law of 2010 say they want the new rules to curb the abusive practices of the housing bubble. Many groups are split on the merits of the ability –to-repay rule. The rule, mandated by Congress in response to lax underwriting standards before the 2008 financial crisis, will also offer some legal protection for lenders who follow guidelines for so-called qualified mortgages. The measure also insulates issuers of qualified mortgages at prime interest rates from future lawsuits while preserving the ability of consumers to sue under other federal statutes. In addition to this, the rule marks a crucial step in establishing a framework for mortgage regulation. This could be a game changer in the market because consumers will be able to see in a single document the main key points they need to know without all of the fine print that has often obscured and confused consumers.
The Federal Reserve, the Securities and Exchange Commission and four other regulators are also expected to be involved in the writing of these new regulations. In addition, there will be a push for restructuring Fannie Mae and Freddie Mac, which is a government-sponsored enterprise that buy and back mortgages to provide liquidity in the market.
What do these regulations mean for prospective home buyers? Buying and refinancing has often been a confusing experience fraught with frustration. Much of this reform started in 2008 was designed around the idea of the borrower having clear, accurate information and loan officers being educated, qualified, and ethical. Some argue that the regulations are actually too restrictive and can be a hindrance to borrowing. Others have welcomed the new guidelines. Now some people will argue that the restrictions have created an environment where there’s not enough lending going on, however, there are record volume originations. This, indeed, reflects positive signs for those needing a loan. The changes that have been made have been good for other reasons because people who were in the mortgage industry when it went sour were not serious enough about the business. They just wanted to make big money fast. They did not really study their products. The consumer suffered as a result. Most of these people are no longer in the business, so the regulations have weeded out this incompetent business practice that was so prevalent at one point. Mortgage bankers have to know the rules and regulations. This will bode well for home buyers and the future of the housing market.
Sources: “Better Business Bureau®.” BBB Consumer News and Opinion Blog. Web. 13 Jan. 2013.
“Mortgage Overhaul Begins With Borrower Scrutiny Measure.” Bloomberg. Web. 13 Jan. 2013.
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