A Slew Of New Guidelines Can Clip Mortgage Origination By 20%
Since the mortgage meltdown of 2007, the industry has been hit with a slew of regulations. While consumer advocates think much still needs to be done, industry insiders and some outside experts thing the pendulum has swung too much on the other side and is impacting the housing recovery. A recent study by American Action Forum estimates that new regulations would not only hinder qualified borrowers from access to loans, but also result in 20 percent fewer loans than otherwise would be made. Some of the major guidelines and regulations in recent years that have impacted the industry are:
Implementation of Home Valuation Code of Conduct (HVCC) – As part of this, mortgage brokers and commission based lender staff were prohibited from ordering appraisals. It was to ensure appraiser independence. However, according to National Association of Realtors, it resulted in increased time in obtaining an appraisal and decrease in quality of appraisal. It also restricted appraisal portability which means borrowers had to pay again for a new appraisal if they wanted to switch lenders.
Change in Good Faith Estimate (GFE) – Replacement of one page GFE to a three page GFE was supposed to provide more clarity to borrowers, encourage rate shopping and decrease the cost of borrowing. Most of the studies suggest, it has achieved none of those purposes.
Stricter guideline for condo financing – Fannie Mae, Freddie Mac and FHA have all changed their guidelines in recent years making it more difficult to get a financing on a condominium unit.
Constant increase in FHA Mortgage Insurance Premium – In last year FHA has increased its mortgage insurance premium three times and is set to increase the premium again next year. That has increased cost of borrowing for home buyers dependent on this kind of financing.
In 2013 several new regulations which are part of Dodd-Frank Act is going to hit the industry. As part of this act, Qualified Mortgage (QM) Rule and Qualified Residential Mortgage (QRM) will be implemented. These provisions are expected to establish general set of standards about a borrowers ability to repay a mortgage.There is also Basel III requirements scheduled to go into effect in 2013. Basel III is a global regulatory standard on bank capital adequacy, stress testing and market liquidity risk. Basel III requires additional bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage. According to American Action Forum, these two regulations will further tighten lending and may result in 600,000 fewer home sales. Other impacts include up to a million fewer housing starts over the next three years, 3.9 million fewer jobs and a loss of 1.1 percentage points of GDP growth.