Flurry Of New Regulations To Prevent Another Housing Bubble May Stifle Credit And Harm The Still Fledgling Housing Recovery

Tuesday, October 23, 2012 22:34
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Flurry Of New Regulations To Prevent Another Housing Bubble May Stifle Credit And Harm The Still Fledgling Housing Recovery

Tags: banks | economy | Federal Reserve

New regulations in the banking industry may cause banks to tighten credit requirements on home loans once again. Two rules are scheduled to take effect in January that set standards for non-abusive lending and require banks to hold a minimum amount of high-risk loans on their books.

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The International Basel III standards requiring larger reserves will also kick in and the two rules cited above may come into conflict with each other.
 
It’s a perfect storm-like intersection of policies that are threatening to derail the still-fragile housing recovery. Credit for home loans is still tight—so much so that the Federal Reserve is concerned that borrowers are not able to take advantage of the low-interest rates it will continue to target until 2015.
 
There’s not enough liquidity in the marketplace so about 28% of transactions are all-cash deals from investors snapping up distressed inventory.
 
The government will enter a new phase over the next few months in its effort to set limits designed to prevent another housing bubble.
 
Regulators in all agencies are tightening rules to the point that they will threaten the return of capital to securitization. They will shut out borrowers with less-than-perfect credit, making credit available only the most gold-plated borrowers.
 

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