Breaico, LLC www.breaico.com
We all know how bad the Dodd Frank act is for the mortgage industry. Dodd Frank has helped to speed up the decline of Community Banks and small banks. I’m not going to go into details of the law because it’s a complex set of regulations. You can Google that topic and read all of the information yourself. My focus is to discuss the possibility that is floating around on the internet that President Elect Donald Trump may do away with this law or modify the law in some way.
This law has allowed the big banks to get bigger and has been a drag on lending to borrowers, and curtailed the amount of money brokers and loan originators can make to support their families. This law has in effect cost jobs in this field and has wiped out small businesses within this arena. I don’t know about you, but we need to keep our own citizens employed and entrepreneurs that are willing to take risks to step up to keep our economy strong. Incentives need to be in place to encourage that. Income creation for our citizens is what keeps our economy going.
The Dodd Frank Act has also hindered the ability of our citizens to be able to qualify for a mortgage. The excuse to enact this law was based on the housing crash. The reasons given by the government was that the banks were too big to fail because of the mortgage crisis and the banks needed to be bailed out with taxpayer money to prevent the economy from going into a tailspin.
The housing crash according to the government spin were blamed on people who bought investment properties and residences to live in took the loan type called “Liar Loans”. These loans were also known as stated loans. The basics of these types of loans are: the borrower stated their income and if their credit score was very high the borrower could get a loan to buy a home or investment property with very minimum documentation to provide for qualification of the mortgage. Very simple, efficient, and quick to get those types of loans funded back in the day. Keep in mind that the documents everyone signs to take on any type of mortgage usually has an acceleration clause that the bank can accelerate the mortgage also known as foreclosure proceedings for any reason or no reason to take ownership of the property back.
During this same time frame the economy started to take a nose dive during the end of the Bush term in office. I will give Obama credit that when he took office, he inherited an economy that was heading towards recession. However, he never addressed the economy or how to stimulate the economy to sustain 3% GDP. The governments answer was quantitative easing by printing more money and placing the cash into the circulation economy which did nothing for us but devalue the dollar and worsen the economy.
The banks and lenders claimed that the borrowers could not make the monthly mortgage payments, so the lenders/bankers claimed they lost money by taking the real estate in foreclosure. However, the majority of the properties the lenders foreclosed on were homes, rentals, and entire subdivision construction projects that had equity and were performing notes to my understanding. This means that the banks took back a property that had increased in value that the bank turned around and either rented out or sold to investors or new homeowners with no loss of profits or income.
If the property that was foreclosed on had private mortgage insurance, then the banks were paid money out of the proceeds. They profited from the sale of the property and collected the insurance money on the defaulted loan. In essence, they made money twice on one property. Then the government in their brilliance trying to supposedly prop up the economy to prevent these banks from going out of business forced the banks to take bail out money to keep them in business by dumping this bill on the taxpayers. Bam, third source of income for the banks/lenders.
Just a brief explanation of what my online research has revealed about this so called crisis. Let’s look at some examples with so that you can get a better understanding of what I’m talking about on how the lenders made their money from the private mortgage insurance.
Foreclosure and conventional PMI
When a homeowner defaults on their home loan, the home goes into foreclosure. The foreclosure results in an auction of the property and the bank sends a representative out to bid on the home for what is owed and usually gets the property. With conventional loans, the bank lists the property for sale. If the home does not sell for the balance of the mortgage owed to the bank, the private mortgage insurance will pay the difference. For an example, the balance owed to the bank was $100,000.00 and the property was sold for $70,000.00, the PMI will pay the bank the difference for their loss which is $30,000.00.
Foreclosure Government guranteed PMI
The PMI pays the bank the balance remaining on the loan regardless of the amount they sell the home for on the market. For example, we use the same $100,000.00 mortgage balance owed to the bank. The Gov. PMI pays the entire balance owed.
The evidence indicates to me that the whole mortgage crisis was manufactured and engineered for the long term. My argument as well as the research indicates that the housing crash was manipulated so the banks would make more money on the loans they made to borrowers. However, the plan backfired on them because the government stepped in and enacted restrictive lending laws so now numerous people are stuck as renters because they can’t qualify for a home mortgage.
We can now see the results of the housing collapse manipulation. Home ownership according to Bloomberg is at the lowest level since the 1960s. In the 1960s, the population size was smaller than the population size today in the USA. I suspect the formula used to determine home ownership levels are skewed and the numbers are much lower. If you delve in a little further out on this subject, maybe the bankers and the government had this all planned out so that the majority of our citizens remain tenants and not be able to obtain home ownership. Home ownership is a path to the middle class and the government has been shredding that segment of the economy for some time now.
No one buys a home with the intent of letting the property go back to the bank via foreclosure. Real estate investors who purchase rental property for income don’t want their investments going into foreclosure either because investing in real estate is their business model and a source of income and hopefully appreciation of their investment asset(s) over time.
Since Trump is serious about making America great again, this law needs to scrapped like a lot of other growth stifling Obama laws to allow people who want to purchase a home easy access to mortgage money with out a lot of obstacles.
Brenda Harper, MBA