Proposed Mortgage Rules Could Reduce Lending by 20%

by 27 Oct 2012

(TheNicheReport) -- Mortgage lending costs in the United States could increase in 2013, prompting lenders to pass on the burden to borrowers and hampering the nascent housing recovery. Such are the observations published in a report by the American Action Forum (AAF), a think-tank based in Washington, D.C. The report is titled Regulatory Reform and Housing Finance: Putting the “Cost” Back in Benefit-Cost.

The AAF report looks at three factors that go beyond the definition of a qualified mortgage under the Dodd-Frank mortgage rules that could potentially go into effect next year. These factors include the Basel III agreement on capital standards for banks, mortgage underwriting and securitization. Should these go into effect, the report estimates that mortgage lending activity could be reduced by as much as 20 percent.

Looking Back to 2001

The report uses the year 2001 as the baseline point of reference for the study, and establishes projection for the three years. The impact to Gross Domestic Product (GDP) would be 1.1 percent, and the number of new constructions would drop by at least one million. The lending standards adopted by mortgage lenders since Dodd-Frank passed in 2010 are already very strict compared to 2001. The report explains that mortgage originations would be directly affected by the new rules.

The qualified mortgage issue has been conspicuously absent from the electoral campaigns of the presidential hopefuls. Former Governor Mitt Romney lightly touched on the matter during the first presidential debate, which happened to be his shining moment of his campaign. What actually constitutes a qualified mortgage is in the hands of the Consumer Finance Protection Bureau (CFPB), and the proposed rulemaking is still being reviewed.

The AAF president, Douglas Holtz-Eakin, expressed his surprise at the lack of attention by legislators to the proposed rules. His view is not being shared by other think-tanks. The Center for American Progress was quoted in the Wall Street Journal as being more optimistic with regard to the potential qualified mortgage rulemaking. This view supports the idea of consumer protection regulations eventually leading to increased mortgage lending and, more importantly, preventing another housing bubble.



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