President Obama is now requesting an easing of regulations targeting mortgages. Everyone should want a stable mortgage system that allows qualified buyers to purchase real estate, but it’s becoming more obvious (even to politicians) the conflict between regulations, and governmental agencies (CFPB & HUD) will undermine a critical element of the nation’s economic system.
The challenge of meeting regulations by adding attorneys, compliance officers and multiple layers of underwriters make it more costly to originate loans. That result is added expense passed on to the borrower in the form of fees and interest rates. Because of the risk of governmental and borrower litigation, lenders will be restricting credit to only borrowers that meet a very restrictive criteria. That flies in the face of the “expansion of the middle class” that’s a political sound bite.
Logical regulations and guidelines are a necessity. The idea that conflicting, and restrictive regulations, from multiple regulatory agencies will have to be resolved in the courts via lawsuits is not a way to run a government, protect an economic system, or the consumer (which is what the Consumer Financial Protection Bureau is supposed to be about). – Ron Henderson
National Mortgage News Aug 8, 2013
Pressure is mounting for bank regulators to dial back pending mortgage rules after President Obama said he’s worried the housing market could become too constrained by “overlapping regulations.”
In the wake of the president’s housing address on Tuesday, the media largely concentrated on his recommendations for housing finance reform. But Obama appeared to touch on forthcoming rules that many in the industry are concerned could hurt credit availability.
“Now that we’ve made it harder for reckless buyers to buy homes that they can’t afford, let’s make it a little bit easier for qualified buyers to buy the homes that they can afford,” Obama said in the speech. “So [Department of Housing and Urban Development secretary] Shaun Donovan has been working with the finance industry to make sure we’re simplifying overlapping regulations; we’re cutting red tape for responsible families who want to get a mortgage but keep getting rejected by the banks.”
Many said the president was apparently referring to the separate rules defining “qualified mortgages” and “qualified residential mortgages.” The Consumer Financial Protection Bureau released its final QM rule in January that created an ultra-safe class of loans that receive added legal protections from liability lawsuits. But the bank regulators have yet to finalize their definition of QRM, which are a different set of mortgage standards tied to a risk-retention rule. Lenders have worried the two definitions might be incompatible and have urged the regulators to ensure the two definitions are consistent with each other.
While the president did not mention either rule by name, observers said it’s clear his reference to “overlapping regulations” refers to both.
“QRM is really it,” said Isaac Boltansky, an analyst at Compass Point Research and Trading. “When you look at the totality of the mortgage-related rulemaking from the Dodd-Frank Act, that has been the clear common thread.”
Regulators are expected to re-propose the QRM definition soon, and may tie its definition directly to QM. Under Dodd-Frank, lenders must hold 5% of the credit risk of any mortgage they securitize, unless it is considered a qualified residential mortgage. The six agencies involved in the rule-writing proposed in 2011 to make that exemption very narrow, including requiring a 20% down payment as part of the criteria. But lawmakers and the industry said that was too extreme.
As a result, the definition is likely to be eased in the next proposal, observers said.
“All of the rules have been far less onerous than anyone originally envisioned,” Boltansky said. For example, “you’ve got QM, which covers 90% of current market and includes more government-backed loans than what few would have imagined originally.”
Some said the president is also focused on other pending regulations. David Coleman, a managing director focused on mortgages and consumer lending at KPMG Advisory, noted that Obama made an explicit reference to CFPB efforts to create a simplified mortgage disclosure form. Like the QRM rule, the finalized mortgage forms are expected to be released later this year.
Obama “may be pointing to those efforts but at same time, you’ve got other things indicating that there is a clear intersection” like the QRM rule, Coleman said.
Still, observers said Obama’s comments may have come too late to have an impact on regulators, who are expected to move on QRM in the near future and are already aware of the administration’s views.
“To get that many agencies on the same page for a final rule is extraordinarily difficult,” said Jaret Seiberg, a policy analyst at Guggenheim Partners. “The regulators are well aware what the administration generally thinks that QRM should equal QM.”
Ron Henderson GRI, RECS, CIAS
Multi Real Estate Services, Inc
Gov’t Affairs Chair – California Association of Mortgage Professionals