The financial regulatory bill known as Dodd-Frank, named for it's two main congressional proponents, Chris Dodd and Barney Frank, has begun to kick in. The bill is more than 1,000 pages in length, and will address virtually every corner of the residential real estate industry.
Virtually no one in the industry will avoid the impact of this new and sweeping attempt at financial regulation and "consumer protection". While it's intent was to address the housing crisis, and protect consumers from unscrupulous lenders, the real estate industry is cringing as the bill begins to become active.
But there are so many pieces to this bill, that actual implementation of all of the sections will take several months, if not years. No one knows what the ultimate effect will be, but the real estate industry is cringing as it waits to see how this bill will impact the residential real estate markets in the U.S.
First, this bill gives new powers to the Federal Reserve to regulate the housing industry. This is new territory, and already some of the new rules proposed by the Fed have been the target of major concern amongst housing industry professionals. Most prominent among these is a rule that defines a "Qualified Residential Mortgage". If implemented as written, this rule would require 20% down payments, and strict underwriting guidelines that even private home sellers who want to finance the sale of their home would have to follow. Obviously a rule that even affects private home sellers in addition to licensed professionals means that these rules will have an impact on every single home sold in the U.S.
The National Association Of Realtors has come out strongly against the rule as written, saying that the proposal will threaten the housing market by making it harder for buyers to meet the stringent requirements for qualifying. Any reduction in potential home buyers could deal another blow to an already weak housing market.
Mortgage Bankers, Home Builders and virtually any other group associated with the housing industry is concerned that these new rules will have a negative impact on the housing market.
Even private real estate investors and note buyers are concerned that the new rules will eliminate seller financing as an option for those buyers who have damaged credit or other financial problems. Under the new rules, private real estate investors who sell more than three properties per year would have to meet the same guidelines as any bank or lender, and would even have to become a licensed Mortgage Loan Originator just to sell their own properties with seller financing.
Sellers would still have to qualify the buyer under the "Qualified Residential Mortgage" rules, which do not allow for credit issues such as payments being 60 days late on a credit report. Since seller financing is commonly used to help a buyer who cannot presently qualify for a traditional mortgage, these new requirements would effectively keep sellers from helping buyers with credit problems.
The whole idea makes no sense. Restricting buyer qualifying at a time when home sales are at record lows does not seem like a good way to get the housing market and the over all economy back on track. Some even imply that this is not an attempt to protect consumers as much as it is an attempt to take over more control of the entire U.S. housing industry. So the industry watches and waits as these new regulations begin to take effect. Only time will tell how much they will help or how much they will hurt the housing industry.
The last paragraph sums it up, with the caveat there is little doubt this will harm an already unstable real estate market.
Regulation is not the answer, we need to allow the free market to function with some basic guidelines to prevent fraud and abuse.
The unintended consequences will devastate home ownership and wealth building by middle class Americans.
I totally agree Dave. Another case of unintended consequences, or in some corners you'll see industry pros who believe that this is actually the intent.