Regulation Is Holding Back a Real Housing Recovery

Seven years after its collapse, the U.S. housing market still has not experienced a real recovery. The heavy-handed and misguided federal policy that was supposed to cure the problem is instead the main culprit in preventing a recovery. Thanks, Dodd-Frank!

The 2010 Dodd-Frank Act confuses endless red tape for effective reform of housing finance.

One part of the Dodd-Frank law, implemented by the Consumer Financial Protection Bureau (CFPB) in October of last year, is revised compliance formsand waiting periods required for each mortgage transaction. These compliance forms, required under the Truth in Lending Act-Real Estate Settlement Protection Act Integrated Disclosure (TRID) rule framework dating back to the 1970s, seem to be adding confusion rather than clarity to the loan origination process.

It is still too early to understand the full impact of the these changes to the TRID-rule structure, even though there are many early warning calls from the mortgage industry suggesting far-reaching effects that are much more intrusive than promised by the Consumer Financial Protection Bureau’s chief regulator.

Many lenders in the mortgage industry are suggesting that these changes are already having a negative impact on their business operations, beyond any seasonal factors weighing on the housing market.

Federal regulatory rules of this type add little if any value for most residential real estate transactions, especially when layered on top of existing state regulatory laws. There is no reason to assume, as the new regulatory system does, that willing and capable borrowers (consumers) are incapable of making financial decisions on their own without the government interfering.

Over time, this regulatory system creates perverse incentives for those in the mortgage market. By providing the illusion of protecting and providing safety for consumers, they actually are more likely to encourage less responsibility and due diligence on the part of borrowers in real estate (mortgage) transactions.

Moreover, proponents of these regulations, particularly when focusing on the recent 2008 housing crisis, tend to twist the overall narrative to perceivedmalevolence and imprudence on the part of mortgage lenders while generally displacing any focus on the other side of the coin in the transaction: the decision-making process of the borrower.

All told, to correct these policy mistakes and move toward a real recovery in housing, we need to create a housing finance system where borrowers and lenders are free from unnecessary and meddling regulation. We need a system built on conservative, free-market principles.

And to achieve this end, Congress should focus on setting in motion a path torepeal the Dodd-Frank Act of 2010, a crucial financial regulatory policy regime that continues to hold back a real housing market recovery.

http://dailysignal.com/2016/02/04/regulation-is-holding-back-a-real-housing-recovery/