What Legislation Could Mean for the Housing Market in 2012

Steve Stapleton

By Megan Oster

The 2012 elections may not begin until November, but Democratic and Republican nominees are already debating two radically different views on what government policy should be for the housing market, with ideas on the Federal Reserve, the Dodd-Frank financial regulation legislation, Fannie Mae’s HomePath program and the Home Affordable Refinance Program (HARP) garnering a significant amount of the nation’s attention.

On the Democratic side of the aisle, policies generally follow the Obama administration’s strategies of direct intervention, which include a plan to convert the government’s roughly 250,000 REO properties into rental units, a principal write down program, and, as advocated by the Federal Reserve in a recent white paper, a greater role in mortgage modifications by mortgage insurers Fannie Mae and Freddie Mac.

All such proposals, though, are likely to be rejected by Republican lawmakers, who follow a more laissez-faire approach to economic matters and see such government programs as wasteful and underperforming. For instance, many cite the lackluster performance of the Home Affordable Modification Program, or HAMP, a government program aimed at modifying home loans and reducing mortgage payments. Though it was launched with the goal of aiding four to five million homeowners, HAMP will likely have assisted only 1.2 million when it expires at the end of 2012.

Steve Stapleton, vice president of Mortgage Services, III, feels that over the last few years, the real estate and mortgage industries have been overwhelmed with new regulations that have had an adverse effect on the housing market. The Federal Reserve’s rule governing how mortgage loan officers are paid ended the practice of paying originators more when a borrower accepts a higher interest rate mortgage, as well as the practice of mortgage originators receiving payments directly from the borrower and the lender simultaneously.

“This rule impacts the cost of financing that homebuyers would usually get,” Stapleton says. “It has also made the overall process of obtaining home financing more difficult and cumbersome for all involved parties, including agents.”

Repealing much of Dodd-Frank, Stapleton asserts, would help generate more opportunities for agents.

“A decrease in regulation, combined with more overall economic certainty, might motivate lenders to lend – ultimately increasing the number of viable home buyers,” he says.

Stapleton does not consider Fannie Mae’s HomePath program – designed to help homebuyers purchase qualified foreclosed homes with expanded guidelines, a low down payment and flexible mortgage terms – harmful, but he does feel that the program did not have the impact that was sought by its proponents.

“The program fell short because of a lack of consumer confidence. Consumers are still leery about what tomorrow could hold in terms of their employment, the economy, etc.,” Stapleton says. “Regardless of how cheap you make something, if people are fearful of what could happen tomorrow, they are not going to buy it. Consumers need to reach a certain comfort level that can only be provided by effective action taken by our representatives in Washington.”

Stapleton believes that the latest version of HARP, which the government calls HARP 2.0, has the potential, at least, for short-term success. Aimed at helping underwater homeowners refinance their mortgages, HARP 2.0 offered a number of revisions from the original program when it was announced in October, including the removal of a strict 125 percent LTV ceiling for qualifying homeowners and an extension of the program’s expiration to Dec. 31, 2013. Additionally, in late December, Fannie Mae eliminated its requirement that lenders assess the borrowers ability to pay when refinancing.

Ideally, the program should help keep more underwater homeowners in their homes, and reduce the number of potential foreclosures.

“If successful, HARP 2.0 will strengthen both housing values and the overall housing market,” Stapleton says. “It may, however, have a negative impact on long term interest rates, as it is yet another stimulus.”

Despite his misgivings about some of the legislation, Stapleton feels that 2012 has the potential to be a solid year for agents and their clients.

“Due to rates remaining at historic lows and housing values being at or near their lowest as well, 2012 brings great opportunity to many for home ownership as well as offering relief to those that are currently in a mortgage secured by a depreciated asset,” he says. “Our industries have weathered a vicious storm started in 2008. We have suffered much attrition, so even though the overall demand or supply of potential home-owners may have lessened, there is less competition, and those remaining have proven themselves to be true, dedicated professionals who will see the benefits of their hard work and commitment.”

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