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Old 12-27-2013, 11:34 AM  
HonestChieffan HonestChieffan is offline
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Dodd-Frank looming in January

THE NEW DODD-FRANK RULES — MODERN LIBERALISM IN A NUTSHELL
http://www.powerlineblog.com/archive...a-nutshell.php

The almost non-stop stream of Obamacare twists and turns should not divert our attention from radical new regulation of mortgage financing that will take effect, pursuant to Dodd-Frank, on January 10, 2014. Diane Katz of the Heritage Foundation has the details.

As Katz points out, Washington’s response to the financial crisis of 2008 rests on the premise that the housing bubble and subsequent crash were the fault of unscrupulous mortgage lenders who took advantage of naive, uninformed consumers. In reality, she says, “lenders and borrowers were responding rationally to incentives created by an array of deeply flawed government policies.”

What were these policies? Primarily, (1) artificially low interest rates set by the Federal Reserve, (2) the massive subsidy of risky loans by Fannie Mae and Freddie Mac, (3) and the low-income lending quotas set by the Department of Housing and Urban Development.

In the all-too-familiar pattern, Washington now seizes on the problems caused by its own poor policies as the basis for grabbing more power with which it can craft new bad policies that will lead to more problems. Indeed, as noted below, the new mortgage financing rules actually double-down on “diversity” policies similar to those that helped produce the financial crisis.

At the heart of the new regulation is a requirement that lenders ensure that borrowers have the “ability to repay” a mortgage. Borrowers will now have the right to sue lenders for misjudging their financial fitness. Borrowers may also assert a violation of the ability-to-repay requirement as a defense against foreclosure, even if the original lender has sold the mortgage or assigned it to a servicing firm.

The impact of this new scheme is obvious. As Katz says, it “will raise the costs and risks of mortgage lending” and thereby result in less credit availability.

Dodd–Frank Act does offer a “safe harbor” that reduces (but does not eliminate) the prospect of litigation for lenders who meet certain mortgage criteria, such as loan limits, fee caps, and prescribed payment calculations. The existence of the safe harbor for protected classes of loans might well mean the virtual demise of other types of loans.

Yet, as Katz explains, these non-protected loans — balloon mortgages, interest-only mortgages, and negative amortization loans — are all beneficial to certain home buyers. It follows that eliminating or reducing such loans “means fewer options for would-be homebuyers, and a new barrier to the wealth creation associated with property investment.” This “is not consumer protection, but consumer control.”

Perhaps the most perverse element of the new rules, given the history of the financial crisis that precipitated them, is their diversity requirements under which lenders could face stiff penalties if their pool of borrowers is, by government standards, insufficiently “diverse.” The fact that the pool of borrowers results from neutral underwriting policies designed to comply with the new regs will not be a defense.

The government will expect lenders to do what may well be impossible — make sure (1) that borrowers have the ability to repay mortgages and (2) that minority borrowers receive a proportionate share of loans even though, as a class, they are less affluent than others and thus less likely to meet the stricter mortgage requirements being imposed.

As Katz reminds us:

Ironically, [diversity] requirements were a factor in the housing crash. The Housing and Community Development Act of 1992 required that 30 percent of all loans acquired by Fannie Mae and Freddie Mac be made to low-income and moderate-income borrowers. By 2007, the quota had reached a whopping 55 percent, which required a considerable loosening of underwriting standards to achieve.

The bottom line is this:

The 3,500 pages of new mortgage regulation will not guarantee that a housing bubble and collapse will not happen again. Nor can such inflexible standards possibly keep pace with the constant changes in market conditions. But it will constrain the availability of credit and increase the costs. Such a regime eviscerates the fundamental principles of a mortgage “market,” thereby punishing consumers more than protecting them.

This is modern liberalism in a nutshell.
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Old 12-27-2013, 07:41 PM   #2
chiefzilla1501 chiefzilla1501 is offline
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I know lawyers who have worked with Dodd-Frank. The cost of just the compliance and legal personnel alone just to figure out what this is, let alone how to action plan against it, is absolutely insane. For one company, let alone all the companies that have to deal with it. Some regulation is needed in financial services. Of course. But this is such a freaking embarrassment. Companies should be investing in growth, not hiring more freaking lawyers.

The cost of doing business this has created is just awful.
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Old 12-28-2013, 12:14 AM   #3
Bewbies Bewbies is offline
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I'm in the mortgage industry, this mess looms large. We are going to see stories about denied loans after previous approvals etc in the next quarter. A lot.

There's a lot of folks who believe this change will open up sub-prime again because there's a lot of good loans that an institutional (ie Wall Street) type could make because they are not regulated to death like banks. Time will tell...
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Old 12-28-2013, 06:51 AM   #4
HonestChieffan HonestChieffan is offline
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Quote:
Originally Posted by Bewbies View Post
I'm in the mortgage industry, this mess looms large. We are going to see stories about denied loans after previous approvals etc in the next quarter. A lot.

There's a lot of folks who believe this change will open up sub-prime again because there's a lot of good loans that an institutional (ie Wall Street) type could make because they are not regulated to death like banks. Time will tell...
Doesnt Dodd Frank cover those non bank loans at all?

Will banks have quotas on certain loans?
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Old 12-28-2013, 07:31 AM   #5
HonestChieffan HonestChieffan is offline
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Reading more this morning it sounds like the guy buying first house is going to be hard pressed to get a mortgage. No income history if just out of school. Or retirees on pensions will lenders feel D-F regs allow loans if no job and pensions are not guaranteed.

Will banks have quotas on low income loans? Wi they bd allowed to define the mortgage markets they want? Will banks be forced into areas of towns they dont want to do business in?
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Old 12-28-2013, 07:56 AM   #6
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Just what the economy needs, another round of Dodd-Frank, the gift that keeps on giving.
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Old 12-28-2013, 08:19 AM   #7
Bewbies Bewbies is offline
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Quote:
Originally Posted by HonestChieffan View Post
Doesnt Dodd Frank cover those non bank loans at all?

Will banks have quotas on certain loans?
We are still hashing this one out, but investment firms that aren't regulated like federally licensed institutions can offer portfolio products, delivered by banks, but not subject to the same regulations. Makes sense.
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Old 12-28-2013, 08:36 AM   #8
HonestChieffan HonestChieffan is offline
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I have a friend, very well off , retired from a fortune 200. Went to refi his house in the last month. In past if was like autopilot. Super credit score. Never missed a payment, equity over 50 %. He was asked for a copy of his SS card....odd. And a letter from the company that he will be paid his pension for the next three years. They had his fed tax returns for three years already

Amazing stuff. If he was self employed, how do you certify you will be paid for the next three years? Or a farmer where income swings year to year are totAlly unpredictable.
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Old 12-28-2013, 03:42 PM   #9
BucEyedPea BucEyedPea is offline
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This changes the direction of America because it is the greatest government takeover of the financial sector of the economy via central planning. Its akin to FDR's National Recovery Act of 1933 which introduced central planning to America.
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