California Real Estate and the Unintended Financial Reform Consequences

Picture credit to Renjith Krishnan

Now that we have the 2,000 page Dodd Frank bill signed into law, how is this going to affect real estate business in general? Is it going to stimulate the real estate industry? Is it going to help stabalize home values? Is it going to make it easier and cheaper for consumers when it comes to obtaining a California mortgage?
All the answers I believe are no, however something had to be done but was it wasn’t thought out very well.
Having politicians in charge of making decisions and reform to a business that they don’t know very much about isn’t a good idea. Making business decisions using one’s own personal morals isn’t usually good for business either.
For example, not allowing a lender to select or have contact with the appraiser (unless the appraiser works as an employee of the lender) is morally a good idea.
The result is now appraisal fees have gone up by 25%-50%. Who absorbs this additional cost? We do.
In addition most experienced appraisers have left the business and many times appraisers are coming from long distances to appraise a home and know nothing about the local area. This doesn’t bode well for home values.
The above isn’t a part of the Dodd Frank financial reform it’s just an example on how it’s unintended consequence is affecting our wallets.
A moral choice was made in that it isn’t fair to mark up an interest rate on a California┬áhome loan so that the lender and loan originator can make more money.
That sounds fair right? But that mark up on the interest rate frees up a pool of funds that can used to pay for a borrowers closing costs and fees. This comes in handy for first time homebuyers who are short on cash and people who want to refinance and not pay fees. Now that will no longer be available.
The moral compass is right but there’s not enough research as to how this change was going to affect all consumers.
The same goes for the credit card part of the reform. Credit card companies can no longer charge evil predatory fees and rates. But really how many people had to pay these rates and fees? Less than 15% of the nation.
Again moral compass good. But now banks not having that income are cutting rebate programs and now the free checking accounts are no longer going to be free, and my preferred interest rates on my cards are going up.
Again unintended consequences.
What’s most glaring about the financial overhaul is that the largest bailout in American history was spent on the mortgage giants Fannie Mae and Freddie Mac and not one bit of reform is being made to them. Wow.
This coming year will be one of historic proportions once all this new legislation becomes part of our daily lives.
What additional unintended consequences are in store? One thing is for certain it won’t make it any easier or cheaper for the person trying to obtain a California real estate loan or in general, on the middle class American consumer.

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