Mortgage Legislation Hurting Consumers, Housing Market
Before the housing bust, Rich Bonn witnessed the mortgage officers he worked with walking their customers through the loan application process and trying to make it as easy as possible, coddling them along the way so they didn’t run off to another lender.
"The customer was king and those of us in the industry who wanted their business had to really wine and dine them, really be sweet," said Bonn, who was a wholesale rep who worked with mortgage officers and is now a mortgage officer himself in Houston.
Bonn still treats his customers with kindness, but as for making the loan process as easy as possible? No longer an option.
That was before we fell into the Great Recession, and as economists and politicians started playing the finger-pointing game, the housing boom was right in line with Wall Street.
Much of the blame for the bust has gone to the mortgage industry. Bad loans turned into record numbers of foreclosures. The government (and taxpayers) were forced to bail out Fannie Mae and Freddie Mac. And as a result, a reactionary government has initiated a smorgasbord of regulations, oversight and laws to solve the mortgage crisis.
The list is endless: the SAFE Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Truth in Lending Act (TILA) and the Mortgage Disclosure and Improvement Act, just to name a few. Not only is the government trying to prevent another bust, but all of these laws are in place to protect the consumer.
But the consumer is no longer king. In actuality, the consumers (or borrowers) might be the ones who end up suffering more than anyone.
"In this market, qualifying for a loan is difficult," Bonn said. "And so once you get a customer convinced to do business with you, you have to change your expectations and change from being a recruiter to a drill sergeant. You've got to change from, 'I really want your business and I'll do anything to get it,' to, 'now that you've agreed to do business with me, I'm going put you through boot camp.'"
The "boot camp" includes endless credit checks and an investigation that makes the borrower out to be a suspected criminal, guilty until proven innocent.
Consumers are also paying the price (with their wallets) for what all of this has done to the loan application process. As bankrate.com reported last week, closing costs have increased 36.6 percent since last year. Politicians would argue that's a price worth the rise in responsibility.
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