Despite some signs of life in the real estate market, actions resulting from the Dodd-Frank legislation signed by President Obama will just drag things out. The result will be a mediocre real estate market and a mediocre recovery, both of which we are experiencing now. Expect more of the same going forward.
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What does Dodd-Frank have to do with it? Among other things it created a so-called Consumer Financial Protection Bureau. And it gave the director of this bureau unlimited power to write his own rules and regulations, even retroactively. President Obama appointed Richard Cordray without the “advice and consent” of the Senate, which was in session at the time. Obama claimed the Senate was not in session, although it had not adjourned and was conducting minimal business each day during a July holiday period. Obama’s claim that the Senate was not in session self-qualified him to make a recess appointment — only good for a year.
Meantime in a year Cordray can do a lot of damage. Being a five-time undefeated Jeopardy! champion means he is bright, but we’re not sure his experience as Ohio solicitor general and later state treasurer are directly applicable to his current position.
His most recent pronouncement of note is rule making related to home foreclosures.
Banks and government-owned mortgage investors Fannie Mae and Freddie Mac “can no longer steer borrowers to those options that are most financially favorable for the servicer,” Democrat Cordray told an audience in Atlanta earlier this month.
As noted by Wall Street Journal writer Alan Ziebel, “The new mortgage rules are complicated, and the industry will likely need months to adapt.”
Though the rules don’t take effect for a year, indications are that foreclosures expected this month have not taken place as banks consult their legal staffs and establish procedures to meet the new regulations.
The regulations are complicated only because they just constitute a circular argument. 1. Foreclosure proceeding could not begin until a borrower is four months in arrears. This gives a borrower time to apply for help and prevents a bank from beginning foreclosure at the same time. 2. Within 15 days of a second missed payment banks must send borrowers information about alternatives to foreclosure and info on housing counseling. 3. Mortgage servicers cannot complete a foreclosure if a borrower submits an application for aid more than 37 days before the home is scheduled to be repossessed. That is where the circle is completed.
All a borrower need do is keep sending an application for aid every 37 days for repossession date. By that time the homeowner is no longer a borrower, but a squatter by government fiat. Keep those applications going and a person can stay in a house for a year or more without paying a dime — at least until the state authorizes selling the property for unpaid property taxes.
The rules seem like they would be helpful until one ponders No. 3. Then it seems apparent this will just drag things out, keeping the foreclosure wave slowly rolling along and keeping prices down for the rest of us. It would be far better to clear out all the foreclosures banks are holding onto and stop pandering to the mortgage-backed bond investors, who cry every time banks start clearing foreclosures off their books.