The feds have done it again – Today President Obama signed a massive bill of over 2,300 pages that apparently nobody in Congress has actually read. I know I’m not the only one concerned about our lawmaker’s habit of passing legislation and then reading it. This has probably been standard practice forever, but now it seems our leaders are fond of saying things like, “We’ll find out what’s in the bill after we pass it”. Is honestly really the best policy in this case? You know, you can get most books on audio CD now. Perhaps if we put these bills on CD our legislators could listen to the bill on the way to the golf course or while on board their private jet. Anyway, I digress. So, what does this bill really mean to our real estate market?
Without going on a rant about how we got into this mess, lets just say that the mortgage industry is largely to blame and as a result mortgage brokers and bankers will feel most of the pain from this new legislation. According to the National Association of Realtors (I didn’t read the bill either), much of the bill deals with the regulation of hedge funds, banks and financial services companies, but there are several areas of the bill that could directly affect our real estate market in the future.
- A new agency will be created: The Consumer Financial Protection Bureau (CFPB) to oversee the Real Estate Settlement and Procedures Act (RESPA) and the Truth in Lending Act (TILA), previously overseen by HUD and the Fed respectively.
- Investors and homeowners who want to provide seller financing to buyers will be able to do so as long as they limit those transactions to three times a year.
- Deadlines were created for reforming our secondary mortgage market companies – Fannie Mae and Freddie Mac .
- Possibly the most important part of the bill is how is deals with the regulation of “exotic” loan products such as subprime and stated income loans. While these products are virtually non-existent now, they will undoubtedly become available again in the future and will face much more regulation including:
- Lenders must ensure borrowers ability to repay the loan
- New penalties have been established for irresponsible lending
- More disclosures must be provided to consumers on mortgages
What does all this mean and how will it affect our real estate market? Well, it will likely be years before we see any direct affects of this legislation, but the stability it will provide is what should give comfort to real estate buyers and sellers right now. With these new regulations in place and a new agency to oversee everything, it seems unlikely that the mortgage industry will make the same exact mistakes again. So it stands to reason that we can expect a much more stable real estate market in the future, or at least a more normal market than we’ve seen in recent years.
Bottom line, for those of us who have been in real estate long enough, this real estate market already feels normal again. Just like the old days, if you want to buy a home you must have a job, good credit and 20% down. If you lack the sizeable down payment, you’ll need an FHA or VA insured mortgage. Buy only what you can afford and your home should be one of the most rewarding investments in your entire lifetime. For those who fall outside these limits or who have special financing needs, you may need to jump through some more hoops and you may wait longer to close your transaction, but be patient. Somewhere in a dark room inside a big bank, really smart people are figuring out how to give you money again.