The Future of Mortgages

The current trend in real estate has been quite positive. For an extended period of time, we have seen pretty consistent growth in sales and home prices. After years of dealing with poor market conditions, we are all breathing a sigh of relief. Nevertheless, the industry must be vigilant in ensuring that nothing is done to impede or reverse the housing recovery, particularly by Congress and the regulators in Washington. Despite the improved sales numbers, however, mortgage credit remains tight. Nowhere is this more evident than in the consistently high percentage of cash purchasers in the National Association of REALTORS® (NAR) monthly existing home sales numbers. While sales are improving overall, it is those with cash who seem to be driving the numbers higher, even though interest rates remain historically low.

We have seen the tightening of credit through higher effective minimum credit scores for FHA and conventional conforming loans. Lenders are already avoiding risk, begging the question: What will happen when numerous Dodd-Frank rules take effect? What will happen if major changes are made to the FHA program? What will happen if the role Fannie Mae and Freddie Mac play in mortgage financing is fundamentally changed or even eliminated? With so much change and potential change on the horizon, it is at times overwhelming, even to industry experts. In talking to many industry experts, one gets the sense they are simply living for today until truly confronted by tomorrow. That is the wrong strategy because bad outcomes tomorrow can be prevented by action today.

Here are some of those actions:

• Tell your Congressman to support HR 1077, The Consumer Mortgage Choice Act, which
will prevent reduced access to Qualified Mortgages (QM) for many consumers.
• Tell them to oppose major changes to FHA, such as reduced loan limits, increased down payments, limiting to first-time homebuyers, or people of certain income levels.
• Tell them to oppose efforts to do away with the function the Government Sponsored
Enterprises play in establishing a securities market for mortgages.
• Tell them to oppose Basel III capital rules that discriminate against mortgages as secure instruments.
• Tell them to oppose a Qualified Residential Mortgage (QRM) that establishes a down
payment standard and extremely tight debt-to-income and credit standards.
• Tell them to support equal treatment for condos under the FHA program.
• Tell them to support opening FHA 203K for investors to help rebuild communities one home at a time.

These are a few of the actions you can take to keep the housing recovery going. While you are telling Congress these things, you should also weigh in with the regulators, such as the Department of Housing and Urban Development (HUD) and the Consumer Financial Protection Bureau (CFPB). HUD plays a key role in the QRM and FHA rules, while CFPB is responsible for the QM, RESPA, TILA, Loan Officer Compensation, and a host of other rules. Congress, the regulators, and the administration can all help to ensure a sustained housing recovery, but only if they do the right things.

This column is brought to you by the NAR Real Estate Services group.