What the Dodd-Frank Rollback Means for Real Estate
On May 22nd, Congress passed reforms to the Dodd-Frank Act, the massive financial reform bill enacted in July of 2010 in the wake of the 2008 US financial crisis.
The current bill could have a big impact on the real estate and mortgage lending. Economists believe the rollback of the Dodd-Frank regulations could lend a hand toward partially solving the industry’s inventory crisis.
“This is a win for the financial industry,” said Chief Economist Nela Richardson, who worked on the bill as an economist for the Commodity Futures Trading Commission. “These are community banks, credit unions, a lot of them are in rural areas. They do a lot of mortgage lending. This will help consumers in that the banks will be able to free up some credit.”
National Association of Realtors Chief Economist Lawrence Yun echoed Richardson, adding that a loosening of Dodd-Frank rules may lead to a rise in regional construction.
“The regulations placed on small-size community banks were terrible because it hindered small-sized homebuilders from obtaining construction loans,” he said. “As the homebuilding industry has become more dominated by large corporations, now we have this relief, which means that, small-time homebuilders will have better access to capital to build homes.”
Economists seem to agree, that the economy is not on track to repeat the financial crisis of 2008, since big banks were at the center of the collapse a decade ago. Richardson explained that the only way to eliminate all risk is to make everything as onerous as possible.
The legislation will also require Fannie Mae and Freddie Mac to consider the use of alternative credit scoring models, which could help borrowers with thin credit files receive a mortgage. But Gardner said he’s concerned, ultimately, we need to remain aware of looser credit restrictions so the country does not repeat the acts of the last financial crisis, where homeowners were given loans they could not pay back.