Future Rules Could Make Getting a Mortgage More Difficult

by 10 Oct 2012

(TheNicheReport) -- Viewers of the first presidential debate in the current electoral campaign who were hoping for more elucidation on the housing economy were left mostly disappointed. President Barack Obama briefly mentioned a nascent housing recovery, and that was about it. His opponent delved slightly more into the issue, but not a lot. He gave his opinion about the difficulty of getting a mortgage in the U.S. these days, and he assigned some of the blame to the Dodd-Frank Wall Street and Consumer Protection Act and its new regulations. 

Mr. Romney got a bit more technical and addressed the issue of qualified mortgages, something that has not yet been fully defined. He said that banks were reluctant to make loans because of their uncertainty of what a qualified mortgage constitutes. According to a recent blog post in the Wall Street Journal, the fact that banks are still waiting for a final ruling on qualified mortgages does not affect the ability of borrowers to apply for loans, but that might be changing soon.

Mortgage investors these days, mostly Fannie Mae and Freddie Mac, are not too concerned about qualified mortgages. They have provided enough capital to facilitate a mortgage market. The credit and underwriting guidelines have not become as strict as many people think, but they are nowhere as lackadaisical as they used to be in the era of unrestrained subprime mortgage lending. Another problem is that for many borrowers and new applicants, their income, assets and creditworthiness are simply not enough to qualify for home loans these days.

Mr. Romney's claim of uncertainty by major lenders over qualified mortgages does not apply to the last couple of years since Dodd-Frank. This does not mean that banks are not concerned about upcoming regulations, in particular with regard to mortgages that end up on a list of repurchase demands. This is something that major banks are losing sleep over, but they are also concerned about the current difficulties in obtaining mortgage insurance and home prices that do not climb fast enough. 

There is a valid concern, even at the Federal Reserve Bank level, that the rules for qualified mortgage will become too stringent and therefore spook banks altogether. The credit and lending guidelines will remain the same, but then the banks will have less incentives to write mortgages.

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