Bankers’ Hours column: Changes to come in mortgage lending
We’ve written a log about LUC (the Law of Unintended Consequences). Not much has been said about LUC’s evil twin by the same name:
The Law of Unknown Consequences.
But the bad LUC is very much at work right now, especially when it comes to mortgage lending. A lot of people smarter than this writer are speculating what will happen to residential financing when the new administration takes office. Some are predicting dramatic changes in real estate financing.
But, just maybe, as far as borrowers are concerned, there won’t be much of a change at all.
There’s no doubt that the Dodd-Frank act, which mandated massive restructuring of banking as a result of the Great Recession, will be retooled. And the Consumer Financial Protection Agency will be drastically reorganized, with much of its draconian power negated. These events have been heralded by some conservative commentators as effecting a sharp increase in mortgage money for American homeowners.
But, actually, probably not: There’s plenty of money available, and almost surely always will be, because U.S. mortgage-backed securities are back to being some of the best investments on earth. If the demand is there, the money will come.
Some prognosticators have pointed to a spike in mortgage rates immediately after the election as a harbinger of a new era of higher rates for borrowers. But that was almost a non-event, because the Fed was going to raise rates anyway; they’ve been way low, maybe too low, for a long time.
Others have expressed fears that less regulation will mean looser underwriting standards, so banks will make bad loans, and foreclosures will result. That’s not going to happen, at least, probably, for 30 years or so. After the Meltdown of 2008, lenders aren’t going to act against their own economic self interests and knowingly lend money to people who can’t pay it back; it generally takes bankers about a generation to forget the last crash, so that 30-year number may hold pretty well.
Thus it seems fairly certain that loan-underwriting guidelines, which presently are about where they generally were in the 1980s, won’t change much.
What will change, and for the better, will be the complexity associated with getting a mortgage, although, in the long run this may benefit bankers more than borrowers. Calling off the CFPB dogs could simplify every aspect of the mortgage application process, from the required initial disclosures through the property appraisal process. For example, the standard mortgage application document (Form 1003) is scheduled to be expanded from its present four pages up to nine in 2017.
There are those who point out that less red tape, and rolling back harsh penalties for non-compliance with the current consumer protection laws, will bring more small mortgage lenders into the marketplace. Maybe not: Most small banks stayed out of mortgage lending when it was easy, and it’s doubtful they’ll flock to the business line now.
So it might be that things will improve just a bit for borrowers, and quite possibly more than a bit for bankers. But we’ll probably not see a new dawn in mortgage lending.
This sort of reaffirms what we’ve come to realize over the past seven years: The U.S. economy is a robust engine that does pretty well if left alone. Even before the election, the jobless rate was at its lowest in 42 years, the stock market was thriving, and inflation was in check.
But what makes U.S. politics such a fascinating spectator sport (that is, if you’re sitting in the grandstands in Canada) is that we’re compelled to stir things up every four years, just to see what happens.
Pat Dalrymple is a western Colorado native and has spent almost 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is firstname.lastname@example.org.
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A while back, I received an email from Bill Wright, a retired Realtor and a good friend. He wondered how the mortgage loan process had changed since he had left the business, much of which…