When you’re busy selling real estate or running a brokerage, you can’t be expected to follow every twist and turn in Washington over this rule or that rule. But there was one important twist just a few weeks ago that will make a genuine difference in your business—and yet you won’t notice a thing. That’s why it’s so important.
On July 2, the Federal Reserve released its rule implementing the international BASEL III capital standards. Originally, the Fed wanted to require banks to hold more capital in reserve for most of the residential mortgages they make, which would have made these loans far less attractive to banks than other types of products. What’s more, costs to your buyers would have gone up significantly. But when the rule came out, the increased capital requirements weren’t in there—they were one of the few things the Fed changed prior to publication.
Why? Because the National Association of REALTORS® and other real estate organizations made a clear case for not harming the attractiveness of home mortgage lending in the way that had been proposed.
To be sure, had the changes taken effect, business would have dropped off and the real estate market weakened. But NAR and the others also made it clear that the risk-weighting just wasn’t necessary, in part because the bad exotic loans of the housing boom were now a thing of the past and also because the upcoming qualified mortgage (QM) rule set standards for strong loans without requiring banks to hold more capital.
QM takes effect early next year, but banks are already underwriting to its standards and the loans are performing well. So with these new underwriting standards in place, the added reserve requirements simply aren’t needed. And the Fed agreed.
NAR still has concerns with the QM rule, but for the most part, the rule came out with sound standards that the association can support. (The outstanding concerns have to do with a cap on certain fee limits, and NAR is continuing to let regulators know why they’re a problem.)
With QM and BASEL III released, there’s much less of the regulatory uncertainty that lenders have been concerned about since the big Wall Street reform bill, Dodd-Frank, was enacted a few years ago. There’s still one more important rule to come out: the qualified residential mortgage (QRM) rule that is intended for loans packaged into securities and sold to investors. But putting that rule aside, the regulatory environment is much clearer now than it was just a few months ago. And so far, regulators are showing that they understand NAR’s mantra about doing no harm to the market.
To make the impact of the BASEL III rule more clear, NAR regulatory analyst Charlie Dawson and Senior Economist Ken Fears sit down for a discussion that gets at the heart of the issue in this 4-minute video.