Under Dodd-Frank, there are a slew of different regulations that impose stricter standards for receiving, selling and securitizing mortgages in an attempt to curb the abuses that led to the 2008 financial crisis in the first place. The rationale is that healthier borrowing and lending could ultimately give investors more confidence in the mortgage market. The concern, however, is that the new rules will overreach — particularly at a time when the mortgages market still needs to get back on its feet.
The independent Government Accountability Office issued a report on the issue in July, pointing out warnings from some consumer and industry groups that some of the forthcoming criteria “could increase the cost and restrict the availability of mortgages for some borrower groups, including lower-income and minority borrowers.” Given that the housing crisis was in part fueled by issuing mortgages too liberally to such households, such an outcome wouldn’t be too surprising. But the GAO report was ultimately inconclusive about whether these were legitimate worries, partly because it didn’t have sufficient data, but partly because regulators hadn’t spelled out all the criteria and finalized the new rules.
Moody’s chief economist Mark Zandi has raised similar concerns about the impact of Dodd-Frank on the secondary mortgage securities market, which is also critical to the revival of the housing market. In a September paper, he examined a new regulation that requires firms to own a stake in the securities they issue. Regulators are still working out the details of how the rule will be implemented. But Zandi and his co-author warned that “the rule as written could significantly impede the return of private securitization markets and permanently cement the government’s role in housing finance.” Though such changes wouldn’t directly keep people from getting mortgages or refinancing, they could tighten up the market. Ultimately, Zandi concluded that much of the regulation’s impact would depend on how regulators decided to write and implement the rule — a process that’s still ongoing.
So Gingrich and Romney were justified in raising concerns about the impact of Wall Street reform on the housing market. But their warnings may be premature: While it’s true that uncertainty about the forthcoming regulations may already be affecting the market, the biggest changes that could affect potential home buyers and home owners haven’t been put into effect.