Dalrymple: What will the new Administration mean to mortgage lending?
December 10, 2016
Question: What will the new Administration mean to mortgage lending?
Answer: Good question, without a good answer. Or, maybe a lot of answers.
I've written in this space 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 when it comes to mortgage lending. A lot of people smarter than this writer are speculating what will happen to residential lending 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 Bureau 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 the planet. 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 higher rates for borrowers. But that was almost a non-event: 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: after the meltdown of 2008, lenders aren't going to act against their own economic self interest and knowingly lend money to people who can't pay it back.
Thus, it seems fairly certain that loan underwriting guidelines, which presently are about where they generally were in the 1980's, won't change much.
What will change, and for the better, will be the complexity associated with getting a mortgage, although how much this will benefit borrowers, as opposed to lenders, remains to be seen. 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 presently scheduled to be expanded from four pages to nine in 2017. There won't be more money available, but maybe borrowers will get it quicker.
This sort of reaffirms what we've learned over the past eight years or so: 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 soaring, and inflation was in check.
But what makes American politics such a fascinating spectator sport (if you happen to be sitting in the grandstand in Canada, that is) is that we're compelled to stir things up every four years, just to see what happens.
Pat Dalrymple is a former bank president who has been making mortgage loans in western Colorado since 1967. He's currently an advisor to Grand Mountain Bank's Mortgage Lending Outreach Initiative. He welcomes your questions on lending and banking, and can be reached at firstname.lastname@example.org.