What is the Home Mortgage Disclosure Act and how will it affect mortgages?
The CFPB issued a new HMDA (Home Mortgage Disclosure Act) rule in October 2015, which vastly expands the data points and fields that are required to be collected and reported so they can better monitor discriminatory and predatory lending practices, as well as to ensure government resources are allocated properly to enforcement. The new data fields required in 2018 include very specific information about the borrower and the property. Examples of the new items include race, gender, age, credit scores, cost of the loan, etc.
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Sounds great! Why should you care about the HMDA rule?
While the intent of the rule is to help make lending more accessible to all borrowers, the actual real-life implications will be just the opposite.
Here are three negative side effects on consumers of the new regulation for banks.
- It will likely be harder to obtain a loan. Banks will increase the requirements on all borrowers. To avoid litigation, standards will be increased, along with automated underwriting. If a borrower doesn’t fit the box perfectly, they will not get a loan. The exceptions based on human review and reason will be gone. (Like a person with a million in assets, low debt and 25% down but has a credit score lower than the standard won't even be able to get a loan for a $100,000 property because they don't check ALL the boxes.)
- Every lender will have to update their systems to collect more data to be in compliance with the new regulations. Who do you think will pay for it? Borrowers in the form of higher fees and/or rates. And of course, borrowers will spend more time providing this data.
- Banks’ risk (lawsuits, etc.) to lend increases under the new regulations. The banks will not simply absorb the new perceived risks/costs associated with litigation for all borrowers. Again, this will be passed on to borrowers through higher fees and/or rates.
Since it will be very easy to distort the data in whatever snapshot works for the situation I am sure the media will have a heyday with this.
Don't forget, we have also been holding at historically low interest rates. They are also on the rise.
As the cost go up for borrowers bringing affordability down and inventory remains low causing rising home prices, the housing market prices will level off.
Need help taking advantage of this market before the new changes in 2018? Call Sarah TODAY!