The U.S. toughened mortgage-lending standards after the housing meltdown as a way to avoid a repeat performance – but have the new standards gone too far in the other direction? According to testimony by the National Association of Realtors® (NAR) yesterday, they have.

Unnecessary regulatory burdens are preventing qualified, credit-worthy borrowers from obtaining the American Dream of homeownership, NAR told the U.S. Senate Banking, Housing and Urban Affairs Committee.

“Realtors support strong underwriting standards to protect consumers from the risky lending practices of the past, but we are concerned that the pendulum has swung too far,” said NAR President Chris Polychron. “In some cases, well-intentioned, but over-corrective policies are severely hampering the ability of millions of qualified buyers to purchase a home.

“I believe, and our members believe, that we have yet to strike the right balance between regulation and opportunity,” Polychron said.

Despite historically low mortgage rates, the number of first-time buyers is at its lowest point since 1987, and the nation’s homeownership rate has almost fallen to levels last seen in 1990. Today, the number of homes purchased annually remains less than 70 percent of what was purchased prior to the real estate bubble and subsequent collapse.

“No one wants to see a return to the unscrupulous, predatory lending practices that caused the Great Recession, but some modifications to existing regulations would help restore the homeownership rate to pre-bubble levels,” Polychron testified.

To help more buyers enter the mortgage process, Polychron proposed adjustments to a range of regulations. He recommended, for example, changes to restrictive condominium polices by the Federal Housing Administration (FHA), as well as Fannie Mae and Freddie Mac, because condos are often an affordable first-step for first-time homebuyers and minorities.

Polychron called on the Consumer Financial Protection Bureau (CFPB) to encourage additional lending from community banks and more flexibility for lending in small specialty markets, such as rural communities.

Aug. 1 RESPA changes
Polychron also voiced concerns about RESPA (Real Estate Settlement and Procedures Act) slated to take place on Aug. 1, 2015 – typically one of real estate’s biggest transaction times of the year. While NAR supports changes, Polychron suggested that the CFPB take a restrained approach to enforcement efforts initially.

Mortgage Choice Act
Polychron also pressed the U.S. Senate to pass the Mortgage Choice Act. The bipartisan Act would redefine a provision in the Ability-to-Repay rules that limits mortgage fees and points to 3 percent in order for home loans to be considered Qualified Mortgages (QMs).

As currently written, the Ability-to-Repay rules unfairly prevent consumers from getting QM loans through some affiliated lenders, according to NAR, when joint venture services are collectively counted against the cap. Meanwhile, individual services from large retail financial institutions are capped separately.

Loan fees and price adjustments
Polychron raised another concern: He said that high guarantee fees and loan level pricing adjustments by Fannie Mae and Freddie Mac can negatively impacting the housing recovery. Instead of luring private capital into the market, increasing fees only raises the cost of homeownership or redirects more mortgage loans to FHA without a private sector return.

Source: Florida Realtors