Will new rules push mortgage rates higher?

Posted by  on Jan 30, 2013

Q: I've heard that new regulations will make mortgage loans harder to get. Does that mean mortgage rates will be higher?

A: Interesting question, because in normal markets we expect that the more scarce or difficult to obtain something is, the more expensive it will be. Mortgages, however, aren't exactly a normal market.

The Consumer Financial Protection Bureau (CFPB) has issued new rules about the responsibilities lenders have when making mortgage loans. These rules require a more thorough examination of a borrower's ability to repay, greater documentation of financial status, and limits on more complex mortgages, such as those involving variable monthly payments.

So will this make it more difficult to get a mortgage? In some ways, yes. Qualification standards will be more rigorous, and you will have to provide more proof of your income and assets. You also won't have the option of a mortgage structured with low initial payments and larger payments later unless you can demonstrate the ability to make the large payments as well as the small ones.

On the other hand, it could be argued that mortgages have already become tougher to come by in the wake of the housing crisis. Mortgage lenders were burned, and reacted by tightening their underwriting standards. Eventually though, lenders could loosen their standards again, but by mandating stricter rules, the CFPB is trying to prevent a return to the fast-and-loose days that led to the crisis. In the long run, by making the lending system more stable, the new rules should help make sure that mortgages continue to be available to truly qualified borrowers.

As for the current level of mortgage rates, that has been more a function of monetary policy by the Federal Reserve than of the difficulty in qualifying for a mortgage. Those monetary policies are, in part, a reaction to the housing crisis. Ironically, then, that crisis has made it harder to get a mortgage, but cheaper to get one if you do qualify.

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