We know that president-elect Donald Trump, as a businessman, probably detests regulations as much as any other business owner. While protective, some go too far and tack on extra costs to consumers. You really need a balance — enough law to protect the consumer and punish morons who prey upon the unsuspecting, but not enough to make the burden unbearable. I have seen this happen first hand in healthcare — in fact, mountains of regulations are one reason why health care costs are so bloated.
As I wrote back in the fall of 2011, Dodd-Frank is a good idea gone rogue. Dodd-Frank is like nuking an entire apartment complex to get rid of bedbugs in one small 300 square foot unit.
Yes, underwriting rules and loans to “marginal” lenders were out of control and led to the housing bust that brought down our economy. Lenders played “hot potato”, making and packaging subprime loans and selling them off to investors until, when the truth came out, the last investor got screwed because he was left holding the hot potato — a bunch of bad loans. Of course, the fact that the ratings agencies messed up on their projections didn’t help, where is their slap? The fact that lenders were pushing ARMs and interest-only products didn’t help. And now those banks are tighter than Scrooge about lending.
But Dodd-Frank is leaving the details up to a bunch of federal regulators. First of all, we did not elect these federal regulators so I find this almost bordering on unconstitutional. Secondly, what they are going to do will make it harder for people to get mortgages and further depress the housing market. You must know that the credit crunch is about 40% of the problem with the housing market. Bank lending is down by 9% even though bank’s financial profits have risen by 136%. Lending has fallen in 10 of the past 12 quarters despite the bailout. (I’m glad the national press is starting to cover this: we bailed out Wall Street in exchange for loans on Main Street, that ain’t happening.) Dodd-Frank is putting lenders on the hook, requiring them to retain a share in the risk in mortgages they sell to investors. In THEORY, that sounds great — just like taxing millionaires.
Well, according to HousingWire, Donald Trump’s transition team and their website say the incoming president plans to dump Dodd-Frank completely. This could be very good for the housing market. Or would it? (more…)