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How Does the Government Affect Your Mortgage?

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Government and your mortgage

With just a few days to go until the Presidential election, one of the most-talked about issues of the 2012 campaign is the role that the federal government plays in Americans’ every day lives. When it comes to the housing industry, that role got much bigger after the housing collapse of 2007.
So, how does the government affect your mortgage today?

-  More regulations for your lender
Signed into law in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act changed the way financial regulation is done in the U.S. Consisting of more than 2,000 pages, the Dodd-Frank Act created more than 200 new rules for the nation’s banks, credit agencies, and financial advisers.

-  Stricter rules for Good Faith Estimates
Lenders have been required to provide a Good Faith Estimates to mortgage applicants since the mid-1970s.  However, up until 2010, they weren’t required to actually stick to those estimates. So, if your estimate said that your closing costs would be $2,000 and they wound up being $5,000, there wasn’t a whole lot you could do about it. That changed in 2010, when new government regulations went into place.  Now, lenders are bound by the numbers listed in the Good Faith Estimate. That way, you don’t have to worry about dealing with any expensive surprises later.

-  “Quantitative easing” for your rates
That’s the Federal Reserve’s name for the plan they have to spend $40 billion every month buying bonds.  It’s all an effort to jump-start the economy, and, in part, drive mortgage rates down even further. The idea is that if mortgage rates can get low enough (even lower than the record lows we’ve seen all year long), people won’t be able to pass up buying new homes, and the economy will slowly start to crawl back to life. So far, though, the plan isn’t working exactly how it was supposed to.  In fact, since the plan was announced in late September, we’ve actually seen mortgage rates go up!

-  Fewer small banks to choose from
All of the regulations that have been imposed since the housing bubble burst mean that banks have to spend more money following them. For the smaller, locally-based banks, that’s a problem. In the end, it means you may have to go to the “big guys” for your mortgage, instead of heading to the community bank down the street.  Many Americans aren’t happy about that because they like the more personalized feel of smaller banks. In many cases, community banks are shutting down under the weight of all the regulations.  In fact, as you read this, five banks control more than 50% of America’s banking assets! And, if new mortgage servicing rules proposed by the Consumer Financial Protection Bureau pass in January, many of the smaller banks that have managed to stick with home lending so far may not be able to stick around much longer.  The rules would require them to send out monthly statements, warn homeowners when their rates are about to adjust, and provide additional options for homeowners facing foreclosure. Experts say, however, that following these rules would mean drastically changing the way smaller banks operate – and putting them under a sea of paperwork so great that it would likely drive many of them out of the mortgage business altogether. Even worse, the small banks argue, the changes wouldn’t be very difficult for big banks to implement – meaning that the rules that are aimed at keeping the “big guys” in line are really just hurting the “little guys”.


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