Mortgage rules vs. home sales
The never ending battle between government regulation and business efficiency is alive and well within the real estate mortgage industry. The result of the latest skirmish between mortgage lenders and government bureaucrats is a slide in November’s home sales numbers.
In October, the Consumer Financial Protection Bureau that was created by the Dodd-Frank Wall Street Reform Act of 2010 took effect. The object of the act was to provide greater protection for consumers in residential loan transactions in order to protect them against ambiguous mortgage terms, much of which contributed to the housing crisis.
Among other changes, the Consumer Financial Protection Bureau replaced the previous forms borrowers received at the time of application and before closing on a mortgage. In addition, the rules require lenders to give borrowers the final terms of a loan at least three business days before the closing to ensure they have time to understand the terms and fees assessed in the mortgage agreement.
Needless to say, this resulted in a huge learning curve for the lenders, their staff and the consumers. If there were changes to the form within the three-day window, the clock reset and a delayed closing resulted. Forget about the days when sometimes last minute details were hammered out at the closing table.
The result of this is that it is taking home buyers longer to get a mortgage and longer to close. Mortgage processing firms indicate mortgages took an average of 49 days to close in November a three-day increase from October and the longest closing time since February of 2013.
According to the National Association of Realtors, sales of previously owned homes fell 10.5 percent in November 2015 compared to November 2014. This was well below the number economists expected and the sharpest since July of 2010, when sales were down because of the expiration of a home buyer tax credit.
The national median home price, however, rose to $220,300, which is 6.3 percent higher than last year. As a comparison, the November closed sales for single family homes in Manatee County also were down by 12.7 percent from last year, and the median sale price was $270,000, a 14.9 percent increase.
The National Association of Realtors, which represents the national real estate professionals’ community, is blaming the bulk of the November decline on closing delays caused by new federal rules implemented by the Consumer Financial Protection Bureau. Although it acknowledged there is still a scarcity of properties available, its contention is the mortgage processing delays is the primary factor.
Advocates for the new rules stand by their assumption that it was a necessary step in order to avoid another housing crisis by keeping consumers fully informed. In addition, they are quick to point out that the lenders had a year to prepare for the changes and train their staff properly. In spite of this, the new rules and accompanying forms have created turmoil in the industry with a lot of back and forth as lenders, realtors and buyers try and figure it all out.
Undoubtedly, this battle, like all battles, will end, and everyone will live to fight another day. Lenders will get their training and technical acts together, consumers will hopefully understand the details of their mortgage terms better and realtors, who are always in the middle, will stop pulling their hair out. Just remember these words, “We’re the government, and we’re here to help you.”