Will new regulations crimp home loans?

Weeds overrun the yard of a vacant home being offered for sale May 12, 2009 in Elgin, Ill. Some fear stricter lending and mortgage standards could chill housing market.

Two new mortgage regulations from the Dodd-Frank financial reform law are due out early next year. Some realtors say the new rules will keep people from getting home loans. One of the new regulations would require lenders to look at whether a loan is affordable, and whether the borrower has the resources to repay it. The other spells out when banks have to keep a stake in risky mortgages they’re selling to investors.

Charlie Dawson is a lobbyist with the National Association of Realtors.

“We see, the mortgage rules, as they’re proposed, as being problematic,” he says.

Dawson says the new regulations could be so strict that banks would shy away from any risk, constricting credit even more. He says, “Only the ultra-safe, pristine mortgages are going to be made.”

Alys Cohen is an attorney at the National Consumer Law Center. She says you can’t blame the credit crunch on tighter regulations.

“We have a credit shortage now because the lack of regulation destroyed the international economy," she says. "It was exactly this lack of regulation that caused the foreclosure crisis.”

There are voices in the middle of this debate. Susan Wachter is one of them. She teaches real estate at the University of Pennsylvania’s Wharton School.

“There’s no doubt about it: The mortgage market is broken," she says. "And we need rules to put it back together. But ideally, we should have rules to put it back together in a form that worked -- it worked for decades."

Wachter says new regulations are needed. But some pre-housing crisis rules should stay, with lower down payments than Dodd-Frank would require. And more tolerance for a ding or two on an applicant’s credit report.

About the author

Nancy Marshall-Genzer is a senior reporter for Marketplace based in Washington, D.C. covering daily news.

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