Changes to the Dodd Frank Act are Impacting Buyers

The Dodd Frank Act was signed into law back in 2010, but many of the changes that were implemented in January of 2014. This act has the potential to change a lot about the lending process. The idea behind the act was to prevent predatory lending and to hold lenders accountable for their loans, making them liable and subject to lawsuits, if they were not offering qualified mortgages. While this sounds like great legislation, the result is stricter lending practices that will keep many buyers out of the home buying market.

A few key pieces of the legislation that went into effect in January 2014 include the following:

The FHA loan maximum was decreased to $625,500. This is significant because borrowers who qualify for an FHA loan are only required to put down 3.5%. If borrowers do not qualify for an FHA loan they will be required to get a jumbo loan which requires at least 20% down. While some markets may not be greatly impacted by this decrease, markets with high property values like Washington DC and California, will be significantly impacted for a large number of buyers.

Rules for a Qualified Mortgage will need to meet new “Ability to Pay” rules. This includes stricter requirements around verifying income, credit, employment, and assets. The maximum for the debt to income ratio is set at 43%. This will hurt self-employed borrowers, who do not have a w-2 to prove income. It will hurt borrowers with less than perfect credit and with assets that are hard to verify and establish a value for. All these factors will impact lending.

Higher fees will arise. The new regulation has placed a cap on origination fees, where there was no cap prior to 2014. The 3% limit has generally not been met because of the competitive lending market. The other fees that may have a greater impact on mortgage costs is the increase in guarantee fees charged by Fannie Mae and Freddie Mac. These servicing fees will almost definitely be passed onto the customer. Add higher fees, with the anticipated increase in interest rates, and the costs could price millions of borrowers out of the market, or into lower priced homes.

The foreclosure process cannot be started until after 120 days from the last payment made by the borrower. This is very important to note. This will make it more difficult for the banks to foreclose on borrowers, but could be very expensive for the lender or loan servicing company.

These changes are bringing about a new lending environment. Banks have spent the last few years preparing for these changes, but most borrowers are unaware of the changes. There will certainly be a period of consumer education that will be required. The concern is that the stricter lending policies will turn more buyers away. This legislation has the potential to slow down the housing recovery.

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Homeowner Equity is on the Rise

The latest data from the Department of Housing and Urban Development shows progress among the key indicators. In 2013, home sales had their strongest performance since the bubble burst in 2008 with foreclosure rates at their lowest and homeowner equity was up $3.4 trillion since the first quarter of 2012. While this does indeed show positive trends in the market, experts note with caution that the economy is still healing.

Obama Administration Efforts Have a Positive Effect

The Housing Scorecard shows that the effort of the Obama Administration continues to have a positive effect on the market according to Kurt Usowski, Deputy Assistant Secretary for Economic Affairs at HUD. “In 2013,” he said, “the number of properties in the U.S. that started the foreclosure process was down 33 percent from 2012, while salesof previously owned homes was up 9.1 percent.” He went on to say that with foreclosures down, home sales up, and home equity continuing to grow, he U.S. housing market will continue to make steady and strong progress, albeit slowly.

January’s Housing Scorecard shows that there is a continued need for the Making Home Affordable program while it’s still making progress. The Making Home Affordable report for January shows that there is a steady increase in the number of homeowners receiving permanent mortgage modifications. At the same time, homeowners numbering more than 258,000 have found other alternatives to foreclosures including short sales or deed-in-lieu of foreclosure.

Home Sales Up, Foreclosures Down

Housing Scorecard for December features key data on housing market health and the impact of foreclosure prevention programs put into place by the Administration including:

·         Existing Home Sales Continue to Make Gains: In 2013 for instance, there were more than 5 millions sales of existing homes, which was 9.1 percent higher than the numbers in 2012. This was the strongest performance since 2006 when total sales reached an unsustainable level during the housing boom. Additionally, there was a total of 428,000 sales of new homes in 2013 – 16.4 percent above the total sales for the year 2012.

·         Home Foreclosures are Down: there were a total of 747,728 foreclosures started in the U.S. in 2013 according to Realty Trac. While this does indeed sound like a large number, and it is, it is still down 33 percent from 2012, and the lowest number of foreclosures started since 2005. The report went on to say that there was a total of 462,970 U.S. properties repossessed by lenders in 2013. This was down 31 percent from 2012 and the lowest level since 2007.

·         Equity Continues Growth: The equity that homeowners have in their homes is up $3.4 trillion according to the Federal Reserve. This translates into 55 percent growth from the first quarter of 2012 through the end of the third quarter of 2013.

·         Mitigation Programs Continue Providing Relief: More than 1.9 million actions have been taken in regard to homeowner assistance via the Making Home Affordable Program. This includes 1.3 million permanent modifications. The program, put into place by the Federal Housing Administration, continues to encourage improved processes and standard within the industry.

 

SOURCE: http://nationalmortgageprofessional.com/news46810/US-Homeowner-Equity-Up-%243.4-Trillion-Since-Beginning-2012