Basel III, Dodd-Frank may drive down number of originated residential mortgages by 20 percent in 2013

A new study by the American Action Forum revealed that the number of new residential mortgages could fall by 20 percent next year as a result of Basel III reforms and the 2010 Dodd-Frank Act.

Following the recent housing crisis and financial collapse, regulators devised new financial reforms intended to overhaul and reduce risk in the U.S. financial system. The report states, however, that the “well-intended regulations” could “risk undermining long-term growth in the housing market and U.S. economy.”

The report said that the tight regulations may result in 600,000 fewer home sales, which could lead to 3.9 million fewer jobs and a 1.1 percentage reduction in gross domestic product growth.

Additionally, the report refers to Dodd-Frank’s qualified mortgage rule, which establishes standards for how mortgages can be originated, and the qualified residential mortgage rule, which describes the characteristics of mortgages that “can be securitized and sold to investors without requiring that the securitizer retain [five] percent of the risk.”

“While some aspects…will help to create the standards and safety needed to protect consumers and draw private investors…others will overlay high costs and limit access to credit for a large number of potential borrowers…driving consumers from the private mortgage market,” the report said.

The report also indicated that Basel III rules could reduce the number and variety of mortgages available to consumers.

“These rules are likely to have a significant impact on mortgages that do not meet standards for underwriting and ability to repay as defined by the regulators; as well as for most second liens,” the report said.

The report also said that the final QM, QRM and Basel III rules will “dramatically reshape the primary and secondary mortgage market.”

“If done correctly, they could provide the safety and security for both consumers and investors necessary to sustain a housing recovery and beyond,” the report said. “But if these regulations are implemented in an overly strict fashion, they will lower the trajectory for homeownership and the economy for generations to come.”

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