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Could Federal Reserve’s New Rules Affect Housing Market?

realtytoday.com | October 18, 2014

The U.S. Federal Reserve and other banking associations all around the world have been trying to formulate new rules for financial protection of both customers and banking institutions. Could these new rules affect the housing market? If so, how?

A Little History

The Fed along with other global banking associations held a meeting last Saturday in Washington, where they discussed new rules that could prevent banks from entering into swapping agreements unless there was a clause in the contract that ensured protection of the financial system in case of failure of delivery.

For instance, during the 2008 housing market crash - banks packed several faulty mortgages and sold them to investors as securities. When these securities soured in the investment market there was a dire lack of cash which ultimately led to the global economic meltdown.

Global banks are now putting their heads together to prevent such an incident again. The mortgage and securitization scenario in the country has become stricter. Lenders have become more cautious of who they approve loans to and even the slightest drop in credit scores is rendered risky.

Experts Speak

The Fed is poised to announce some new risk retention/qualified residential exemption rules in the coming months. The proposed rule includes retention of at least 5 percent of the risk when issuing mortgage-backed securities.

MarketWatch spoke to a few industry experts who weighed in on how the rules would impact the U.S. housing market.

While some say the risk retention rules could hurt the housing market and dampen its progress, others believe it will hardly have any effect on the real estate sector.

Most think that the risk retention rule will equal the qualified mortgage (QM) rule introduced by the Consumer Financial Protection Bureau that went into effect in January. The QM rule requires loans to be approved only if a borrower met the lending standards.

"We showed them was you didn't need to establish down payment barrier in QRM because QM already guaranteed no bad loans would be going into securitization," David Stevens, CEO of the Mortgage Bankers Association, told MarketWatch.

"To the degree QM is enforced and everyone is learning to function within it, I think it would have relatively minimal impact. We're still in an adjustment period where lenders are getting comfortable. We are still in a transition period," Joseph Pigg, senior counsel for the American Bankers Association, was quoted by the website.

Interest Rates

Meanwhile, interest rates have been touching record lows. Recently, the 30-year fixed mortgage rate dipped for the first time below 4 percent. Fed officials said a rate-rise was not expected anytime before mid-2015 as the global economy still showed signs of weakness.

 

Back to October 2014 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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