Whats in Store for the Future of Mortgages

We all know that many United States home owners are upside down on their mortgages, and many are either facing, or are going through the foreclosure process. In 2010 the industry saw over 1 million foreclosures, and that number would have been even higher had the federal government not stopped the process of foreclosures late in the year. Numbers show that one in 492 U.S. households received foreclosure notices in November of 2010. Many economists agree that in 2011. 2012 many of the interest only, and adjustable rate mortgages are going to adjust and the number of foreclosures in the next two years could skyrocket.

In response to this perceived disaster the federal government will be launching a new federal department created specifically to deal with the problem. The CFPB (the consumers financial protection bureau) will launch in July of 2011. Chairman of the Congressional Oversight Panel, Elizabeth Warren will be heading the bureau. Ms. Warren is quoted as saying "Shopping for a mortgage should be straightforward as buying breakfast cereal." That may be over simplifying things, but it is out there and we have to wait and see how much assistance and guidance the CFPB can offer middle class Americans.

The creation of the CFPB may be just the thing that is needed to see our way through the crisis. The plan for the CFPBis make things easier for the middle-class family to understand, put things in an easier to compare format, all on one page of paper. The CFPB is being modeled after other federal agencies that operate successfully, the FAA, Food & Drug Administration, the Consumer Product Safety Commission for example,

Warren has some strong political backing in the form of Rep. Barney Frank, D-Mass who sponsored the bill that created the new agency. Rep. Frank told MSNBC that Warren was "absolutely essential"to the bureau. However we should keep in mind that as Chairman of Congressional Oversight Panel Warren supervised the spending of the $700 billion in federal stimulus money. We all know that that didn't go very well, please do not mention a "shovel ready project" in that conversation.

While the Financial Services Round-table is on board where disclosure is concerned, it does take issue with the additional fees, and they point out that the fees could harm the availability of mortgage products in general. That is a pretty bold statement from a banking industry that has pretty much stopped lending to consumers, especially considering it was those consumers tax money that bailed them out. Maybe the United State banking industry should look no farther than our northern border to Canada for inspiration. Terry Campbell, vice president of policy for the Canadian Bankers Assoc. in Ottawa recently put it best saying " we are in the business of making loans to people who will pay them back". The Canadians know of what they speak, less than 1% of Canadian mortgages are in arrears, and not 1 Canadian bank has failed in recent years.

Canada does not have a Fannie or Freddie in it's financial model. The whole reason for Fannie & Freddie is purchase loans from banks, to get those loans off bank books giving the banks more freedom to lend money. FHA is doing their part and are making some changes that should help the US real estate market. The suspension of the "anti flipping" rule is intended to help get the large glut of foreclosure homes repaired and sold and off the market thereby cutting into inflated inventory numbers. With more foreclosures fore-casted in the next few years, that could be of more importance than originally thought.

In a nut shell here is what the CFPB would like to accomplish.

        >Bring clarity on the costs and risks of taking out a mortgage, and do it early in the process.

         >Make it as easy for shopping for a credit card online as it is a car.

         >Give consumers a central place to lodge complaints, Stream line the process down from the current 7 agencies responsible to just the CFPB.

I don't know if the Consumer Financial Protection Bureau will a boon or bust, but I do know our banking industry needs to understand that their job is to lend money, something they are not currently refusing to do. As a real estate professional I know that it matters little how many government agencies,or programs are created, the big problem in real estate is that consumers are struggling to get loans. The Internet is full of horror stories about banks being unreasonable, about underwritting killing deals for minor issues. The pendulum swung pretty heavy in the 90's and early 2000's seeing requirements that were ridiculously liberal, in lieu of those policies a crisis was created, but it is clear that the pendulum has to make some movement from it's current ultra conservative, we are not gonna lend unless your credit is so good you don't really need a loan.

Hopefully Ms. Warren and CFPB can instigate some common sense changes that will aide in the market correction, in the mean time maybe it would be a good idea to head up north and take some notes.

 GettysburgGerry is a real estate professional in the Gettysburg Adams County Pa area. He currently sits on the Board of Directors for RAYAC, Realtors Association of York & Adams Counties, as well as the Rick & Sally Myers Animal Shelter. GettysburgGerry specializes in historic homes in the Gettysburg area, as well as real estate investment advice.