Coming Soon: An Avalanche of Mortgage Regulations


When the Dodd-Frank Act was signed into law in July 2010, it contained 848 pages. From there, the regulations it proposed had to be made into “rules” that the financial industry would follow. These rules would be released over time.

So far the rules and regulations have grown to 8,843 pages, and the regulators have only addressed 30% of the Bill.

The first of the rules regulating the housing market, the Ability to Pay/Qualified Mortgage (QM) rule has now been released, and while some believe it will help stabilize the housing market, others have reservations.

The 43% Debt to Income limit (DTI) is overly inclusive because it includes jumbo loans. These are loans made to high income individuals who can well afford a higher DTI.

The rule calls for a three percent point and fee limit – which is also overly inclusive because it includes compensation for loan officers plus affiliated fees. In addition, capping fees at three percent could cause banks to reject low balance loans as “not worth it.”

The Avalanche is coming…

Seven more rules are scheduled for release by January 21, and more will come by mid-year.

Already, various rules and regulations are overlapping – causing confusion and doubt in the banking industry. The fear is that these regulations will make mortgage lending too restrictive, and result in a housing market in which only the very wealthy may apply.

Many analysts fear that first time buyers and the middle class will be cut out of home ownership.

A second “unintended consequence” of these regulations is lenders leaving the credit markets. When it simply becomes too cumbersome to abide by the regulations, banks will invest elsewhere.

At a time when America is facing a severe debt crisis and should be cutting expenses, American taxpayers have now paid an untold number of regulators to write 8,843 pages of regulations – with at least twice that many still to be written.

But that doesn’t seem to be enough spending. Since all this leads to confusion, the Mortgage Bankers Association has called on the White House to create yet another regulatory agency – a “Housing policy coordinator.” This agency would be charged with evaluating the downstream effects and unintended consequences of the regulations being put forth.

While some regulations were in order to prevent the kind of abuses that led to the housing crisis, the “cure is beginning to look more harmful than the disease.”

Will the new regulations help or destroy the American Dream? We’ll find out as new mortgage lending regulations are imposed over the next six months.

For now, Dodd-Frank appears to be a monster that, once fed, will continue to grow beyond all reason.



Mike Clover
Mortgage Banker

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