The Dodd-Frank Act: Could New Rules Derail the Housing Recovery?
By Barbara Pronin
As if the eventual fates of Fannie Mae and Freddie Mac, now in their fourth year of conservatorship, were not enough cause for concern, pending rulings on mortgage origination requirements as mandated by the Dodd-Frank Act, and the Federal Reserve's recently proposed Basel III capital standards program, have the potential to deliver a crushing blow to both REALTORS and consumers in today's still-fragile housing recovery.
Taken together, noted the National Association of REALTORS (NAR) Real Estate Services Director Ken Trepeta at RISMedia's recent Real Estate CEO Exchange at New York City's Yale Club, the outcomes of Qualified Mortgage (QM), Qualified Residential Mortgage (QRM) and Basel III rulings now under consideration could vastly change the homeownership landscape, conceivably shutting down the mortgage finance market to a good number of homebuyers.
"If the ability-to-repay rules of QM are written too narrowly, Trepeta said, it would tighten credit even more for all but the most credit-worthy buyers. As for QRM, if the rule requires a minimum down payment of 20 percent, much of the first-time buyer market outside of FHA would simply disappear."
Among the most worrisome proposed Basel III standards are detailed risk-weighting requirements that would force banks to hold more capital for all but the most conservative loans, making them more costly for consumers as well as harder to get, Trepeta added.
"If regulators do the wrong thing on any one of these issues, he said, the result could be a ticking time bomb for the housing recovery we are just beginning to see."
NAR, which is vocal on the Hill in vigorously opposing any changes that would limit or undermine the current Mortgage Interest Deduction, has also been working closely with the House Financial Services Committee and the Senate Banking Committee for two years to ensure that Wall Street reform legislation does not adversely affect REALTORS or consumers.
Even if regulators get it right, Trepeta warned, credit overall will likely be tighter. If they botch it, it could be disastrous.
In a July 2011 letter to Fed Chairman Ben Bernanke, then-NAR President Ron Phipps wrote, "regulation of the mortgage lending industry is becoming so complex that it threatens to weaken the system instead of curing abuses, and that the lending industry and regulators have over-corrected in response to abuses that occurred in the middle of the last decade."
The letter calls on the credit and lending industries and Federal regulators to reassess the entire credit structure and look for ways to increase the availability of credit to qualified borrowers who are good credit risks.
This past September, NAR sent a follow-up letter to Bernanke from 2012 NAR President Moe Veissi on behalf of the membership, once again warning of the potential effects of these unresolved issues. It may serve as the basis of a pre-fab letter to be signed and sent to legislators by concerned brokers and agents.
Authority for the rulemaking lies with the Consumer Financial Protection Bureau (CFPB), which has until Jan. 21, 2013 to issue the final ability-to-repay/QM regulations, to take effect 12 months later.