Wednesday, October 7, 2015

New regulations squeeze mortgage lending

"The most terrifying words in the English language are: I'm from the government and I'm here to help." 

- Ronald Reagan

We don't often get the chance to see exactly how much harm is done by politicians and bureaucrats who "help" us by issuing burdensome new regulations that throw a wrench into the workings of the institutions (in this case banks) that make a living by actually helping us. Here's a chart which provides dramatic evidence that the Consumer Financial Protection Bureau's new, 1888-page TILA-RESPA rule (mandated by the notorious Dodd-Frank legislation), which went into effect October 1st, has had a huge impact on mortgage lending:


The chart above shows an index of new mortgage purchase applications (as distinct from refinance applications). Last week it jumped 25.5%—but that's hardly good news. What it means is that mortgage lenders were so terrified of the new paperwork, compliance burdens, and legal liabilities they faced as a result of this rule that they significantly accelerated the processing of new mortgage applications in order to get them in the pipeline before the date the new rule took effect. The rule is so burdensome and costly that many small banks and lenders may be forced to exit the business. Moreover, we're likely to see a huge decline in new purchase applications in the weeks to come, since any failure to comply with the new rules exposes lenders to liabilities of as much as $4,000 per borrower. Meanwhile, for the past year or so banks have been forced to hire expensive outside consultants to help them understand the new rules and revamp their systems and procedures. All of this just to "combine and simplify new mortgage disclosures."

This is just one example of how Dodd-Frank has burdened the financial industry, harming consumers in the process, all in the name of "protecting" consumers.

If you're interested in seeing how "hip" today's bureaucrats can be, take a look at how the CPFB whiz-kids attempt to explain in plain language what it is they're doing and why, here, and here. Sample: "'Why does it take so many pages to create something that’s supposed to be easy to use and understand?' This is a great question, one you’re not alone in asking — 1,099 is a lot of pages, as those of us who were involved in writing them can attest."


20 comments:

marcusbalbus said...

bravo on this

Bike said...

Scott - how do you think this will affect mortgage reit companies like: Annaly Capital Management, AG Mortgage Investment Trust, Newcastle Investment Corp, etc.?

Thank you

Thinking Hard said...
This comment has been removed by the author.
Matthew Grech said...

The direction of regulatory policy for the last 15 years has been an unmitigated disaster. Question: When do we start entertaining the notion that we're getting the government we deserve? That is, when do we stop blaming the politicians - who are, admittedly, terrible - and start blaming ourselves for installing them? After all, we do live in a republic (in theory). When do we start taking responsibility for the laws our representatives enact?

Scott Grannis said...

Re: impact of this on the mortgage industry. This new regulatory burden is equivalent to a tax on mortgage lending. As such, it will add to the already-significant barriers to acquiring a mortgage, and thus retard the growth of the residential mortgage market. I don't see this becoming a huge negative, rather just one more addition to the already-existing headwinds (e.g., tougher lending standards). The housing market has been struggling with these problems for years now, and it's not going to get easier. But that doesn't preclude progress, it just results in less progress than we could have had otherwise. It may contribute to widening mortgage spreads, which have been relatively tight (currently about 70 bps, compared to their long-term average of about 100) since it may result in a relative scarcity of new MBS supply, but I doubt the impact will be significant. Wider spreads should, all else being equal, be good for mortgage REITS.

Johnny Bee Dawg said...

More criminal activity and shakedowns from the Democrat Party. Think of the billions in lost productivity. Elizabeth Warren is a destructive menace. It's about time that industry leaders start pointing this out in plain language.

Johnny Bee Dawg said...

More criminal activity and shakedowns from the Democrat Party. Think of the billions in lost productivity. Elizabeth Warren is a destructive menace. It's about time that industry leaders start pointing this out in plain language.

Benjamin Cole said...

KISS Keep It Simple Stupid. Government programs, taxes and regulations should be simple.

John Cochrane suggests just one regulation for banks: that banks lend out their own equity. Thus loan losses would become shareholder losses (unless loans are securitized, in which case they no longer threaten the banking system).

Benjamin Cole said...

Johnny Bee Dawg---the joke going around is in the USA in 2016 you can vote for the Socialists...or the National Socialists.

Scott Grannis said...

Hard to find fault with Cochrane's idea. At the very least the banks should be required to retain some equity interest in the loans they make. That's what's wrong with student loans: the government can make them all day long, but the taxpayers have to pick up the default tab. Those who take risk have to have skin in the game or they don't do it prudently or sensibly.

Hans said...

Mr Grech, I too have been stating this as well..My candidates keep losing
and so does America..And if CONgress is corrupt, what would it say about those
whom elect them?

The next two general elections are paramount! The Red Tide must not only be held back
but reversed..The result of this menace is clearly articulated by this thread.
However, I should add, that some if not many of these mandates are brought upon
business themselves, as they seek to advance their own interest uber others,
whether morally fit or not..It is not only federal law and the sequence fiats but
the new and improved regulator bodies created by CONgress..From them the laws grow
with scope and power.

A microcosm of this decaying model is California with it's one party state.

I am sorry to say, I am not optimistic about the future.

Johnny, an excellent post..So good, I am gladd you double post!

steve said...

Matthew Grech, you are of course 100% correct. the problem is MOST voters are completely ignorant and/or disengaged and they buy into the spew that people like E warren drivel out. I mean bernie sanders is right up there in the polls! how freakin dumb do you have to be to support him? some people just believe in more government, more regulation and less free market. sadly, I do not see this trend reversing at the national level. I think the best the gop/libertarian can hope for is over representation in congress to balance the crazies somewhat. of course that still means a very left supreme court in the future.

Lawyer in NJ said...

If Republicans want more people to hear their message, stop the social issue nonsense.

Lawyer in NJ said...

It is because of the social issues that I wouldn't consider voting for a Republican. Of course, if Sanders somehow becomes the Dem nominee, I can't vote for him, so I would be kind of stuck unless the Repos nominate a loon, then it would be a third party vote for me.

Johnny Bee Dawg said...

Republicans can't do a thing about abortion or gay marriage without removing from, and then adding several specific new members to the Supreme Court. That crap is settled until there's a massive sea-change in public sentiment that lasts decades. That's not going to happen in our lifetimes. So the social topics are a Straw Man.

Who GAS if Planned Parenthood loses Federal Funding?? They should be cut off. All their "women's health" activities are already provided under ObamaCare, and by County Health Departments all over the country. So that defense is bogus, too.

Stick to what is essential. There isn't a Democrat candidate alive that supports fiscal responsibility, or smaller government. They are pandering for votes by promising the exact opposite. Stop enabling them, and our own destruction. Wake up.

Lawyer in NJ said...

There are currently four USSC justices who are over 75. So an attempt to restrict personal liberty, which applies to women as well as men, could be accomplished fairly quickly.

In terms of fiscal responsibility, look at the disparate deficit and debt trajectories under Clinton and Obama vs. Bush II or Reagan.

Planned Parenthood is the only source of birth control for many women, some of whom cannot afford children.

That prevents abortions, so it would seem to be something Republicans should support.

It's really a sideshow anyway, having very little consequence.



Johnny Bee Dawg said...

So there are only 2 USSC Justice slots that who could even change abortion or gay marriage rulings. Not going to happen.

Planned Parenthood is absolutely NOT the only source of birth control for many women. Patently false.
"Restricting personal liberty" comes in many forms, mostly from DEM policies, IMO. The abortion and gay marriage issues are settled, and are in your favor. No Liberty restrictions involved.

But that was my point. Despite your concerns, we both agree: "it's all a sideshow anyway. Having very little consequence."

Therefore, I'm suggesting the "Social Issue" straw man should be discarded in favor of pragmatic pro-growth policies that actually work, and in favor of fiscal responsibility. No DEM candidate supports those. Not one. There is no slush fund to pay for any of their campaign promises.

Current policies and regulations pointed out in this blog are not sustainable. In fact, they are quite destructive to economic opportunity for the poor and middle class. Readers of this blog should understand that more than anyone. It's not politics, but policy.

Hans said...

Replace morality with debauchery and no economic policy will matter.

Can you not see what the GLADD and LGBT movement have done to the
fabric of society?

If you think that moral issues are not important, then you are
either a Socshevik or clueless.

Death by guns is a grand cause for the left but saving babies from
aborters is not..

What hypocrisy! Oh, I am sorry, but babies can not vote.

Johnny Bee Dawg said...

Who says there's no lending? Dr. Purva Pius to the rescue!

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