Mortgages and Dodd Frank Act

Here's an email report I got from a mortgage lender.  It shows that in the near future, buying a house and attaining the American Dream may be next to impossible.  What is my purpose to put it here.  1.  Show how out of control the government is on regulating everything; 2.  show that if you ever plan to own a home, you had better do it pretty darn quickly.

"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/QualifiedMortgage (QM) rules 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 rules 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 3% 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 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 be to 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 6 months.

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

I too wonder if the health law with it's many intrusive parts will add to this conglomerate of unadulterated growth in rules, regulations, and stifling of the economy.  We'll see.

History of the Fixed-rate Mortgage

What a Deal!

A 30 year fixed-rate mortgage hasn't always been the standard. As part of FDR's New Deal in 1934, the Federal Housing Administration was created to help Americans purchase homes with affordable terms.
Prior to then, many loans had an amount due at the end of the term called a balloon. Most mortgages had adjustable interest rates even though some might be fixed for a short time. While banks would loan money on a home, they retained the right to call the note due at any time which could exert considerable stress on borrowers.
FHA, during this time, introduced mortgages that offered a fixed rate of interest to the borrower for a 30 year term. This fully amortized loan provided borrowers a financial vehicle that would help them achieve the American Dream while minimizing the risk of having a loan called without the resources to pay it off. It brought long-term stability to the housing market and helped stimulate the economic recovery at a very difficult time in our nation's history.
Roughly, a third of the mortgages created in 2011 were less than 30 year terms. Many homeowners, similar to those after the Great Depression, would like to get their home paid for as soon as possible. Shorter term mortgages typically have a lower interest rate but higher payments due to fewer years to amortize the mortgage.

What People Think About Homeownership

Just read an interesting article about a survey Coldwell Banker (YES, that is Prudential's competition) made that shows a shift in Americans' homeownership views. 

It seems it is STILL the American Dream to own a home.  But now, it is no longer tied to financial security or economic reasons, it's tied to the HEART.  The home is the HEART of the family.  Dr. Robi Ludwig stated: "..we're seeing a psychological shift.  Instead of looking at homes through the eyes of an economist, we're realizing that a home doesn't solely equate to financial return or measure only to a mortgage amount.  Instead the home is the emotional center of our lives, and it remains a critical component of who we are."

Stats:  79% indicate the recession has caused society to rethink the concept of homeownership.
           84% Agree more people took owning a home for granted before the recession.
           72% Feel like  Americans have a greater respect for homeownership now than they did before the recession.
            75% Agree thatt due to changes in the housing market and/or economy there has been an overemphasis on the financial value of a home rather than the emotional value of a home.

The article states that Americans remain bullish on homeownership and haven't forgotten the reasons that make homes precious to us, in bad or good times. People are being more mindful about what they need and can afford, and carefully considering these things before purchasing--however, they are purchasing or planning to.

            90% feel people bought more than they could afford before the Recession.
            86% believe Americans are more closely evaluating how much home they can truly afford now.

HOME RENTING VS. BUYING.  MORE THAN A FINANCIAL DECISION.

Ludwig states: "Renting offers many people a suitable temporary solution, but in the long run, owning a home appeals to our innate desire for having things we can call our own, while providing a connection to the community around us.  Home ownership is a commitment; it's about being rooted, which is one of our human instincts." 

It appears that becoming a US "rent-based" society is not plausible. 

            91% agreed that owning a home is part of the American Dream.
            83% of renters said they want to own a home someday.
            94% of homeowners agreed that they are glad they own a home.

Homeownership is a pillar of success for many Americans.  It provides a stable environment.  Landlords don't have whims that interfere with decorating, noise levels, etc.  Our children flourish in secure environments.  And we just feel good stepping through our own front doors and pulling into our own driveways.  It's good to "be at home".  We enjoy having the ability to alter colors, make minor cosmetic alterations and structural changes that showcase our own personalities.  Our homes reflect who we are. 

To view more about this check out http://youtu.be/c9wwQuJY4mg for a video presentation.

Call me at 806 672 3082 if you are moving to Amarillo and need to buy a home and make it reflect who you are.  Prudential Ada Realtors loves to help buyers find their "dream home".

 
          judydendy@sweethomeamarillo.com