Government Regulation Responsible for the Drop in Mortgage Loans from Banks
Banks, credit unions and other depository institutions accounted for less than half of all mortgage dollars lent to borrowers during the third quarter of 2016. According to a recent report by Insider Mortgage Finance, nonbank mortgage lenders extended 51.4 percent of loan dollars to borrowers in the third quarter, up from 9 percent in 2009 and 19 percent in 2012.
While this may be a good sign for some small businesses in the mortgage industry, it doesn’t mean the housing market is healthy or fully recovered from the housing bust and financial crisis of 2008. Banks are scared to originate and sell mortgage loans because of the associated risk, largely because government regulation increases the risk to an unprecedented level. Look no further than the Consumer Financial Protection Bureau (CFPB) lawsuit against PHH Corporation as an example.
Under the Dodd-Frank Act of 2010, lenders are now responsible for the borrower’s ability to repay a loan and the CFPB is responsible for enforcing that rule. This shift in legal responsibility has opened the floodgate for thousands of lawsuits against banks and lenders, dramatically increasing the risk associated with lending as well as the cost of originating loans.
The CFPB openly brags about collecting nearly $12 billion in “consumer relief” over the past six years. In some cases, banks have wronged consumers and deserve to be held accountable. But it seems the CFPB is focused on waging an ideological crusade against the financial industry rather than stopping fraud from taking place.
And with the thousands of new pages of regulations issued under Dodd-Frank since 2010, the financial and mortgage industry’s reliance on the federal government is greater than it’s ever been. The vast majority of new mortgage loans are now backed by the federal government through Fannie Mae and Freddie Mac and the Federal Housing Administration (FHA).
Proponents of Dodd-Frank claim the law protects consumers. In reality, Dodd-Frank is ensuring the financial and housing industries are dependent on the federal government with CFPB director Richard Cordray manning the controls. Essentially, Dodd-Frank is playing the part in the mortgage business that Obamacare is currently playing in the healthcare industry.