Wednesday, July 21, 2010

Obama Financial Reform Law Will Drive Down Home Prices and Raise Interest Rates

If you thought getting a mortgage was tough these days, try again in few months once Mr. Obama's financial reform bill signed today into law becomes effective.


Think what would happen in the Post Office ran your local mortgage broker.  That's your future when you go to buy your next home.


Here is one excellent analysis of what will happen under the new financial reform law, including higher interest rates on mortgages and much more paperwork to get them (including having to prove to the U.S. government and not just your bank you can afford the monthly payments).


I'll go further.  A lower number of buyers mean home prices must fall.


Fewer borrowers will qualify under the new rules.  Banks will write fewer of these loans because, let's face it, why bother?  They are now required under this new law to hold many more of them in their portfolios which sounds like a good idea but ask yourself this question.


Given the reckless government spending, the massive $1 trillion Federal deficits, the certainty of higher interest rates, the likelihood of a double dip recession coming early in 2011, and all the monetary mismanagement lately by the Fed, would you loan someone $250,000 on a 30-year note at just 4.5%?


This is an absurd risk and bankers are not stupid.  Many will exit this line of work if they cannot readily sell the notes to investors to spread the risk.


What the feeble U.S. economy did not need was yet more government regulation and paperwork.


It got TONS and MILES of it in spades today.


Robert J. Abalos, Esq.