“The terrible irony of Dodd-Frank is that it seeks to address the misdeeds of Washington and Wall Street by reducing the availability of credit for American consumers at both ends of the credit spectrum.”
Preparing For 2014: A Year of Transition That’s Likely to Be One Bumpy Ride By Chris Whalen
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n New Mexico Mortgage Professional Magazine n DECEMBER 2013
prices that are much closer to comparable retail home valuations than were the deeply discounted REO sales of the post2008 period. The January 2014 effective date of many of the regulations promulgated by the Consumer Finance Protection Bureau (CFPB) pursuant to the Dodd-Frank law is shaping up to be an unmitigated disaster for many organizations and individuals in the mortgage sector. The number of changes and arbitrary decisions imposed upon the industry by the CFPB are going to fundamentally change the economics of the lending business–one reason why so many banks and non-banks are shrinking or exiting the mortgage lending arena. Some firms have operated in the distressed servicing business for years have been able to adapt quickly, while many other firms focused on performing servicing and loan origination have not been so fortunate. Implementing new operational standards with respect to issues such as ability to pay, debt-to-income ratios, record keeping, diversity, and fair lending is causing lenders and servicers alike huge headaches and costs. For many smaller firms, the solution will be to partly or entirely withdraw from mortgage lending. Unfortunately, Dodd-Frank and the regulations issued by the CFPB do not address the financial crisis at its core, and instead penalize both lenders and consumers operating in the residential mortgage market. Under these laws, lenders are encouraged to originate “qualified mortgages.” These low-risk loans include those backed by the Federal Housing Agency (FHA) and the Veterans Administration (VA), conventional loans bought by Fannie Mae and Freddie Mac, and some “portfolio” loans, which are mortgages that lenders originate and then keep. But qualified mortgages exclude many of the mortgage-loan options that have been available in the past. The terrible irony of Dodd-Frank is that it seeks to address the misdeeds of
investors of double digit reductions in mortgage lending volumes in 2013. Residential loan origination volumes are likely to drop more in 2014, suggesting that the recovery in the housing market is waning. Key indicators such as the Mortgage Bankers Weekly Application Survey are down almost 50 percent compared with a year ago. The most recent earnings results from large banks such as JPMorgan Chase, Citigroup and Wells Fargo confirm that the mortgage market is undergoing significant structural change unrelated to interest rates or other short
NationalMortgageProfessional.com
The year 2014 is shaping up to be a transitional one for the residential mortgage industry. Home prices are likely to continue to improve, albeit more slowly than over the past 24 months, when the narrowing of the spread between real estateowned (REO) and retail sales was the biggest driver of visible home price appreciation (HPA). Thousands of pages of new rules and regulations (care of the regulatory experiment known as Dodd-Frank) will go into effect. Banks will continue to shrink their mortgage lending and servicing operations, and non-banks will continue to grow. A lot of people and infrastructure deployed to deal with distressed loans and mortgage refinancing will be repurposed to serve performing assets and new mortgage originations. But the process of making these necessary operational changes over the next year is likely to be a bumpy road filled with challenges. The U.S. housing market, a critical driver of the economic recovery, is showing increasing signs of improvement. In many markets throughout the United States, prices are rising, construction crews are finally starting to build again and distressed sales are falling. While most analysts expect home price appreciation to slow in 2014, the gains made over the past two years seem real and sustainable. The one caveat to this upbeat assessment, however, is that the new laws and regulations put in place since 2010 are sharply reducing the availability of credit to consumers. The latest data from the FDIC (Q3 2013) shows that bank portfolios of one- to four-family loans are continuing to shrink. The number of cash buyers of real estate is falling fast as the prospects for an easy buy-and-flip strategy are disappearing with the supply of bank REOs. While there remains a substantial supply of REO properties held by various U.S. government agencies–probably more assets than were held by commercial banks–the disposition of these assets is likely to occur at
Washington and Wall Street by reducing the availability of credit for American consumers at both ends of the credit spectrum. The people and companies in the mortgage sector are paying the price for this experiment in social engineering with lost jobs and economic opportunities. Literally tens of thousands of mortgage professionals have lost their jobs and their livelihoods over the past year due to Dodd-Frank and the new CFPB regulations. And the process of employee redundancies and changes to existing mortgage businesses at both banks and non-banks is ongoing. Some of the largest banks in the U.S. have already provided guidance to