For any real estate professional who wants to see the impact of the further intrusion of the Federal government into housing one only needs to study two major events of the past two weeks. First was Wells Fargo announcement that they were sharply curtailing their joint venture activities with residential brokerage. The second was the release of proposed regulation governing mortgage lending that came out the new Consumer Financial Protection Bureau (CFPB) – all 1,100+ pages of it.
There are likely many reasons for Wells to reduce their involvement in brokerage joint ventures but certainly some if not most have to do with tightened regulation of the mortgage lending industry, new capital requirements and the risks inherent in the several states where Wells had such ventures. Along with previous departures of Bank of America and JP Morgan Chase, this shift leaves only a few firms like Citi, PNC and Guarantee as mortgage lenders willing to have joint ventures with realty firms. It truly marks the end of an era where brokerage firms could look forward to the potential of growing their earning substantially in mortgage lending. It is noteworthy that few of the major players are sure even that Marketing Agreements will survive the new regulatory environment.
As to the 1,100+ page monstrosity that came out this week, here are just few of the items that were included:
The CFPB released a proposal to expand the definition of a high-cost mortgage to include those with interest rates that are 6.5 percentage points above the average prime rate or that carry fees exceeding 5 percent of the loan’s value.
The rule would require borrowers applying for these types of loans to receive housing counseling first. It also addresses several fees associated with those loans that consumer advocates have attacked as abusive or excessive.
The CFPB proposed prohibiting lenders in most cases from charging a lump sum due at the end of the loan’s life, known as a balloon payment, and would bar penalties for paying off a loan early. It also would limit late fees to 4 percent of the amount due that month and restrict charges for providing payoff statements.
According to Dave Stevens, head of the Mortgage Bankers Association, it is not just the changes themselves but the sheer volume of them and the likely cost associated with compliance and reporting. Stevens said that small to medium sized mortgage lenders will be swamped with the new requirements.
So while the Realtor® organization can claim that it will fight to keep hands off the mortgage interest deduction, the regulators are winning their fight to further restrict mortgage lending. And regardless of the mortgage deduction, where borrowers cannot get financing, they won’t need to worry about their deduction – they won’t need it as renters.