The subprime mortgage crisis is history for most Americans, and in its wake federal regulators have implemented rules to try and avoid a repeat of the housing meltdown. Since then, both the economy and housing market have stabilized, yet regulations remain highly restrictive, contributing to some serious hassle for homebuyers who need to take a mortgage.
24/7 Wall St. discussed current regulations and conditions with housing market experts. We also reviewed various related data — including delinquency rates, income growth, debt-to-income ratios, and home prices — to identify 10 ways in which buying a house in America today is more cumbersome than it was before the crisis.
The mortgage process used to be easier, more accessible, and less expensive. In an interview with 24/7 Wall St., Michael Fratantoni, chief economist at real estate finance industry advocate Mortgage Bankers Association, said, “[T]he dollars it costs to originate a loan are much higher. They’ve essentially doubled in the past decade.”
The higher costs are due in large part to regulations that require more administrative services, paperwork, and time. This has led in turn to longer wait periods for borrowers.
Today’s mortgages do not typically include mortgage products such as interest-only loans, short term adjustable-rate mortgages, or the controversial negatively amortizing loans, which before the crisis often led to payment shock and default. There remain the popular first-time homebuyers programs, which provide reduced down payments. On the whole, however, there are fewer options. These instruments were abused, and most agree the housing market is better off without them. But for borrowers with unconventional financial positions, like self-employed individuals, it is much harder to get a loan.
The other outcome of greater regulation in a relatively healthy housing market is that some prospective borrowers are left out altogether — especially in some markets. Housing inventory is low, probably because homeowners are still waiting to recover their costs and partly because of lingering jitters from the housing crash. This has caused prices to skyrocket in some markets, and many borrowers are being priced out of these markets.
“People are getting outbid for properties, and for people who are able to buy, the price is accelerating faster than their incomes are going up,” Fratantoni said. This explains how there are fewer loans granted today compared with before the crisis.
With delinquency rates down, and incomes and home prices up, the regulations brought stability to the market and removed some of the reckless behavior in the financial industry. While the outcome of the various regulations is likely a net positive, the following inconveniences of today’s mortgage process illustrate just how far the pendulum has swung since before the crisis.