Overdue Home Mortgage Rules Revisions Delayed Again
Home mortgage rules have been delayed again in Congress.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act financial overall statute requires home mortgage lenders to create “conforming” or “qualified” home loans if they want to access federal government guarantees. The US home mortgage market is a $13.3 trillion asset class and is able to provide home loans consistently and quickly because the mortgage lenders can resell the mortgages they create into the credit markets. While many lenders write loans in conformity to FHA, Fannie Mae, and Freddie Mac rules in order to sell them directly to those agencies; many more lenders in the recent past wrote specialty loans which could be pooled, insured, and resold into the capital markets. For the most part that is over.
Dodd-Frank mandates that the Consumer Protection Agency write rules that exclude loans whereby the borrower only pays interest or whereby the principal balance may grow among many other changes. One of biggest changes is that banks and mortgage bankers will have to keep some of the default risk on their books rather than off-load 100% of the default risk to the guarantor (a federal agency) or to the market itself.
With only vague proposed protocols and new rules delayed by Congress, chaos continues to roil the markets. Mortgage lenders still don’t what a “qualified residential mortgage” is. It appears they aren’t going to get the answer until after the national election in November.
The inability of new home buyers to obtain a mortgage causes the construction of new homes to remain flat even while the population grows. Flat new construction means growth in the multifamily apartment development industry. The Mortgage Bankers Association reports that the country is about 1,000,000 residential units short (single family homes and multifamily) short per year.
Multifamily development will continue apace because of demand generators of lack of home mortgage loans, inability of borrowers to meet new credit requirements, and a general economy whereby households are unwilling to take on the risk of a new home purchase