Regulatory impediments may have the power to considerably change not only one's ability to engage in a mortgage-related transaction but to impact larger housing performance in 2012.
While the public focus has been on how regulation, or government intervention, can affect a borrower's ability to avoid foreclosure, seemingly minor adjustments, updates or other regulation implementation challenges could mean a great deal to servicers this year.
The Dodd-Frank Wall Street Reform and the Consumer Protection Act are examples of loosely defined laws, while rules about qualified mortgage standards and servicers' compensation, even the future of the GSEs, still are open to debate. Apparently these regulatory challenges are standing on the way to very practical issues such as the future of the millions of foreclosed properties spread across the country.
Meanwhile all predictions seem futile.
Only if existing regulation is not as uncertain and clear as the many and complex economic variables that are bound to affect the marketplace, analysts from Fitch Ratings stated that single-unit bank-owned property and bulk REO sales are expected to be “key parts of the housing market over the next two years.”
More specifically they worry about uncertainties around the steps taken by the Federal Housing Finance Agency, which make unclear how the disposition of REOs owned or guaranteed by Fannie and Freddie—which represent about half of all residential distressed assets nationwide—will impact the housing market. The effect is hard to predict due to housing values, state regulation and the nearly eight months or more time lag between the foreclosure and the REO property sale.
The Obama administration is expected to be less predictable during its reelection year. And that in itself, many insiders say, makes it more difficult for mortgage banks to predict whether there will be a rush to pass new laws before Obama's first term ends, or a freeze.
Among others, last year's pressures to allow for temporary interest forgiveness so foreclosure risk borrowers can pay only principal are on the FHFA and its acting director, Edward DeMarco, who constantly faces public pressure.
According to Fitch, the fact that the FHFA's acting director has requested suggestions on how to dispose of FHFA REOs indicates solutions will be local, not national. Since, it is “possible, but unlikely” that such a move combined with sales of FHAs on discounted prices “could have a significant impact on the national market.”
Various outlooks underline collective concerns about restoring financial stability in 2012. But data suggest more unusual, uncertain times may be in store.
By the end of November the Federal Reserve reported uncertainty in the future economic outlook of U.S. economic growth despite data showing some growth has softened the setback caused by the 2007-2009 recession. Economic growth measured by the gross domestic product as reported by the Commerce Department increased 2% between July and September, not even the expected 2.5%.
Despite the active federal involvement in the housing and mortgage servicing space, the biggest uncertainty for mortgage banks and servicer shops is linked to what analysts have defined as a historically unusual period.
Moody's yearend House Price Outlook was entitled “The Sun Will Come Out Tomorrow.” Analysts foresee “a strong rebound” but only once and if the housing market bottoms out this year. A turnaround is in the horizon only if the economy is stronger and the housing market corrects itself through less foreclosure inventory, and shorter property liquidation timelines in problem states like Nevada.
It is an unusual time.