If you are not familiar with the Dodd-Frank legislation, let me give you a brief explanation of what it was supposed to accomplish. This bill was enacted in July of 2010. The goal was a noble one – to avoid another financial disaster. Dodd-Frank puts regulation of the financial industry squarely in the hands of the federal government. The regulation has identified banks that are too big to fail, a plan is in place in case they go under and a higher deposit to debt ratio than before the financial crisis, just to name a few aspects. Increasing the deposit to debt ratio limits the amount of loans a bank can make thus negatively impacting the mortgage lending business.
Right now under Dodd-Frank, regulations are being written to define a Qualified Mortgage, basically who would qualify and how. The National Association of REALTORs® is concerned that if these rules are written too narrowly the housing market will suffer. Of particular concern are the rules surrounding the ability for a borrower to repay their loan. If these rules are too restrictive then only the most credit-worthy buyers will qualify. There is also talk of requiring a minimum down payment of 20%. This would effectively put FHA out of business and make home ownership unaffordable for the first time buyer.
NAR’s Real Estate Services Director, Ken Trepeta, has been quoted as saying, “Even if regulators get it right credit overall will likely be tighter. If they botch it, it could be disastrous.” This is frightening to anyone in the housing industry. We are already having trouble getting buyer clients qualified for loans. The market is just now showing signs of recovery. Any further restrictions on lending will negatively impact the housing industry. I have read estimates that there could be as much as a 20% reduction in loans written. This would be devastating.
One of the things that makes this country special is that we have a system in place to allow young people and families the opportunity to own a home. Financial policies that restrict this system of home ownership will negatively impact the economy as a whole. There has never been a financial recovery that did not involving an increase in home ownership. We encourage everyone to call or write their legislators asking them to implement smart reforms that will encourage home ownership and lending. This will help the economy as a whole to recover.