Will Proposed Deregulation Affect the Foreclosure Market?
Now that Paul Ryan’s plan to repeal and replace the Affordable Care Act has been shelved, it’s time for the Trump Administration to turn to the next big ticket items on the agenda, changing the tax code and moving to deregulate the banks.
In early February, 2017, Trump signaled that he was to make good on his deregulatory promises by signing an executive order that gives the Treasury the ability to restructure key provisions of Dodd-Frank. The question remains, what impact is deregulation likely to have on the mortgage industry and, particularly, on the foreclosure market?
The Dodd-Frank Landscape
Since 2008, when the world was poised on the brink of financial collapse, the financial market has slowly regained its equilibrium, with some key changes. Big banks have notably shied away from underwriting mortgages, paving the way for the emergence of non-bank lenders who have expanded from just 10 percent of the mortgage origination market in 2010 to nearly one half today. The bulk of FHA loans, which are higher risk and have stricter regulatory requirements, are now handled by the fintech companies that have stepped in to fill the vacuum.
However, as Nav Athwal notes in a recent Forbes piece, this era of regulatory scrutiny has not caused a decline in big bank profit margins. Bank lending has increased at a rate of six percent a year since 2013, “reaching a record high of $9.1 trillion in commercial loans in 2016.”
Arguably, Dodd-Frank’s biggest impact has been on consumers, who have a harder time qualifying for loans with the new regulations, and small consumer banks, that do not have the bandwidth to absorb the costs of great compliance regulation. Yet even here, the impact may be overstated. According to a National Federation of Independent Businesses survey, only four percent of respondents are unable to get the loan they want.
If the big lenders aren’t hurting in this regulatory climate, and a whole new lending industry has risen to meet the demands of the consumer lender, it certainly begs the question: Do we even need deregulation?
Financial analysts are skeptical about the ease of rolling back Dodd-Frank, given that the law is comprised of some 400 separate regulations overseen by several different agencies. Nevertheless, most experts acknowledge that deregulation should help small consumer banks, which have been hurt the most by the cost of compliance, and it will almost certainly prove advantageous to small businesses and individuals who were not able to borrow money under the new regulations.
For investors in the foreclosure market, the advantages of deregulation post-Dodd-Frank may be the same as those before the law – as more borrowers qualify for loans they cannot afford, the United States will most likely see an increase in loan defaults. A paper published in 2012 found that deregulation “caused a 49 percent increase in early foreclosures.” For the investor, deregulation is bound to yield more bargain properties on the dent and scratch market.
About Peak Foreclosure Services, Inc.
Peak Foreclosure Services specializes in a wide range of default servicing solutions to support and meet the needs of banks, private investors, servicers, and sub-servicers. We offer in-house judicial foreclosures services, post foreclosure services, and loss mitigation in Arizona, California, Idaho, Montana, Nevada, North Carolina, Texas, and Washington. Our technological and detail-oriented approach to service has set the standard for the industry.