When Unpopular Policy Works

Our current administration inherited a financial crisis that this country has not experienced anything close to since the Great Depression. When the collapse occurred, it was visible by the number of unoccupied homes, and many of us knew of friends, relatives and colleagues who were affected. Initially, problems were blamed on the unscrupulous mortgage broker industry until it was learned that the banking industry had an equal amount of blame.

Almost every loan originator I know was negatively impacted by the housing crisis. They were either losing their homes or their income and in many cases, both. All of us saw the housing bubble, but complacency set in after it continued for years, not months. When the crash happened, it was fast and mammoth. It had to be dealt with and the depth of problems that housing faced during the last eight years was unprecedented. Drastic measures were necessary to be put in place immediately to stop the bleeding.

Many say that measures put in place went too far and stalled the progress of the housing market and ultimately added more cost to the entire mortgage process. Others say it could have been much worse if these safeguards were not in place, and that the inconveniences placed upon our industry need to be adapted to. But a few changes occurred that have provided end results that could be argued as good.

The Role of AMC’s and Home Prices

Many of us have concerns when we see housing prices increase quicker than normal trends again. How do we safeguard against alarmingly fast increases in home value that was the norm prior to the crash? The answer appears to be the Appraisal Management Companies, or AMC’s where all (or at least) Qualified Mortgage (QM) appraisals must go through. Appraisals are now done by third-party appraisal management companies (AMC) who lenders and realtors have no communication with until after the appraisal is completed. Even though the process can be frustrating, the value can’t be blamed on the buyers’ lender. A dispute in value can be done but it is with the appraiser through the AMC rather than the lender.

Qualified Mortgages (QM)

Due to requirements put in place by the Consumer Financial Protection Bureau (CFPB), almost all secondary market sellable mortgage products no longer have prepayment penalties, negative amortization, balloons and interest only options. Prior to the housing crash, these negative options were mostly explained to consumers as “rare to happen”, but ultimately became a main reason so many homeowners were negatively affected by the housing crash.

Consequently, a new industry of non-QM mortgage products is out there. Though a rare few have limited “skin in the game”, most of these products require 20% equity to do the deal.

I know that many in my industry have opposite views of the above. And, yes, policies can be streamlined. Frustrating to all of us is that dealing with housing issues seem to come to a standstill 6 to 12 months before every election cycle, seeming to be a topic that no political candidate wants to touch.

Please don’t say the past housing crash won’t happen again with policy changes in the new administration. Instead, those of us in the mortgage and real estate industries need to ensure that this doesn’t happen again by looking at what policies have and have not worked. More effort needs to be placed in finetuning policy that does work.

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