RTC Mortgage Blog

Professionals Rip Dodd-Frank Act

June 1st, 2015 5:53 PM by Richard T. Cirelli

Professionals Rip Dodd-Frank Act

The Dodd Frank Financial Reform Act is the comprehensive piece of legislature that was enacted a few years ago in order to prevent another mortgage crisis. Although we need to protect ourselves and the public from allowing this to happen again, it is debatable whether or not this is the answer. Those of us in the mortgage business blame the Dodd-Frank Act for the over-abundance of disclosures, tighter qualifying guidelines, higher costs, longer process, a cumbersome appraisal process and other obstacles to providing efficient service and reasonable underwriting.

A Professor Rips Dodd/Frank

In testimony before the House Financial Services Committee, Paul Mahoney, professor at the University of Virginia, recently said Dodd-Frank blamed all of the wrong parties. He says it should have blamed the crisis on government attempts to avoid a recession, expand credit to low-income households, and failure to avoid systemic risks. Mahoney went on to say all Dodd-Frank has really done is enshrine too-big-to-fail banks. He said the mistake is to think Dodd-Frank will prevent future similar failures when history shows it is rare to see failures repeated in the same fashion so, essentially, Mahoney says, Dodd-Frank is nothing more than over-regulation at the expense of the public.

I couldn’t agree more.

Another Professor Rips Dodd/Frank

That testimony was so good, you need to hear more. Hester Peirce of George Mason University pointed out that Dodd-Frank assumes regulators are better able to make business decisions than those who run businesses. Peirce believes Dodd-Frank made it impossible to lower the profile of Fannie Mae and Freddie Mac. Instead, it ensured that they would be the sole sources of conventional lending since the regulations passed shift all risk to the Federal government.

Why Republicans Don’t Just Vote to Repeal Dodd-Frank

There is no question that most Republicans in office today would not have voted for Dodd-Frank and would like to repeal it. So, why don’t they, instead of just sniping at small parts? The number one reason is that they don’t want the label of being “anti-consumer”. Repeal of Dodd/Frank would end the Consumer Financial Protection Bureau. Two polls taken in 2011 and 2013 by consumer groups indicate voters overwhelmingly approve of strong regulation of the financial industry. Then, 60 votes are needed in the Senate and Democrats consider Dodd-Frank a “fall on the sword” issue. Finally, the President has vowed to veto anything that weakens Dodd/Frank. So, Dodd-Frank continues.

Rate Outlook

The two Government agencies responsible for purchasing most of the mortgages originated in this country, Fannie Mae & Freddie Mac plus the Mortgage Bankers Association are all predicting a September Fed rate hike. The prediction is that rates will continue to rise this quarter to slightly over 4%. They believe the 30-year fixed will go to the mid 4s by year-end and above 5% in 2016. Interestingly, they don’t think this will hamper the housing recovery. That is about 40% higher interest cost than earlier this year plus rising home prices. Interesting economics! But, I’m not convinced we’ll see a rate hike this year. And if we do, I think it will be just a .25% hike in the Federal Funds Rate, which is the only rate the Fed controls.

The minutes of April’s Fed meeting, released after the standard three-week delay, revealed most Fed officials “thought it unlikely that the data available by June would provide sufficient confirmation” that there has been stronger growth. That means a hike in June is unlikely but increases the likelihood of an increase in September. But, the Fed also said they could change their opinion with a moment’s notice. I’ll agree with the part about being willing to change their mind – what good is a prediction if they state that they could change their opinion at any time?

But all three economists agreed that despite the projected rise in interest rates, 2015 is still looking it’s going to be strong year for housing. And the economists all said that 2016 will be even better.

I predict that Mortgage rates will rise in the weeks leading up to the hike and fall back down after it. We’ll see.                                               
Posted in:General
Posted by Richard T. Cirelli on June 1st, 2015 5:53 PM



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