Wow, they actually talked about one of the critical real estate issues in the debate tonight. The Dodd/Frank Act was supposed to regulate Wall Street and protect Main Street. Unfortunately, Main Street is getting hit much harder than Wall Street, and Mitt Romney understands what is really happening with it and President Obama doesn’t.
Romney mentioned one of the main issues: no clarity about what defines a Qualified Mortgage, and thus lenders have been and continue to be very reluctant to lend. Obama only thinks this has to do with large Wall Street companies and that it is protecting the consumers. He does not understand what happens in the trenches of a real estate transaction.
My position is that residential lending will continue to languish as long as this is not clear. This is a ticking time-bomb. My understanding is that this must be clarified by January 21, 2013, and if Congress botches it, it will be disastrous to the mortgage lending business as a whole, and will keep the economy from growing out of this recession. I was disappointed that our President talked tonight about helping the middle-class get ahead, and yet endorsed practices like this that will hinder home-ownership in a big way.
To get specific, the Dodd/Frank bill creates two new criteria for mortgage lenders to meet…the QM and the QRM. Without going into major detail, the bottom line is that a QM (Qualified Mortgage) and a QRM (Qualified Residential Mortgage) are not clearly defined, but the penalties for lenders not complying with these guidelines are severe…lenders must take responsibility for 5% of the loan amount if a QM loan defaults. This, in theory, will keep lenders from making bad loans, or exotic loans that supposedly created our economic recession. The QRM creates guidelines that set minimum standards for down payment amounts and other things that are supposed to have lenders make better quality loans. Instead, they have pulled way back and made qualifying much harder.
As Romney pointed out, there are major unintended consequences from these hastily-drafted regulations: lenders have stopped lending to highly-qualified borrowers, and viable loan products have disappeared from the market. This is a classic example of the pendulum swinging way too far. As Ken Trepeta of the NAR said, “No change like Dodd/Frank is needed. The products that got us in trouble don’t exist anymore.”
Romney wins this one hands-down for the real estate industry.