Mortgage Lending - one step forward and two steps back

Sweeping reform of residential mortgage financing is no big secret, but were you aware that there is a lot more to come? The Qualified Mortgage Rule, a segment of the Dodd-Frank Act, is largely undefined and only vaguely understood. The premise is solid, that all borrowers should be able to demonstrate an ability to repay the money that they are borrowing. But most analysts believe that in its zeal to cure all the ills, and revolutionize our housing industry, it goes way, way too far. The predominate feeling is that too-tight restrictions on mortgage lending may freeze and possibly even reverse the tenuous progress that our country’s real estate market has been making. There is legitimate fear that this may disable first time homebuyers for years to come. In fact nearly 100 rules laid out in the Dodd-Frank Act are yet to be completely delineated and implemented, and countless others have simply been overlooked. Our country had obvious issues as a result of loose lending practices, but over-correction is alarming many experts in the financial industry, and rightly so.

I can tell you from experience that credit-worthy borrowers are already being squeezed out of the market by new regulations that do not take individual circumstances into consideration. You cannot paint the entire home buying public with the same brush, but this is exactly what’s been happening.

Smart lending is a balancing act, and it’s something that’s worth getting right. With unemployment still at an unnerving high and real estate just beginning to recover, the lending industry needs to proceed with extreme caution, but make no mistake, it does need to proceed.