A new study sponsored by the Mortgage Bankers Association says the Dodd-Frank bill could stifle mortgage innovation, and lead to a permanent landscape dominated by 30-year fixed-rate loans.
According to figures compiled by National Mortgage News, Fannie Mae, Freddie Mac, and FHA-backed loans currently account for 99% of all loans being funded in the U.S.
Conducted by a professor at San Diego State University, the MBA report concludes that the U.S. traditionally "had one of the richest sets of mortgage products available" in the world but Dodd-Frank likely will end all that.
The trade group argues that mortgage features restricted by Dodd-Frank Bill "such as longer terms, interest-only periods and flexible payment designs are quite common in other countries and are not associated with higher rates of default."
Professor Michael Lea, who conducted the study, told National Mortgage News that mortgages with features like negative amortization have performed relatively well in other countries. Some of these mortgages had tighter underwriting and more restrictions than their U.S. counterparts, he said.
However, neg-am loans (primarily payment option ARMs) have been one of the worst performing products since the U.S. housing bust commenced three years ago.
Lea, who was paid by MBA to conduct the study, examined 12 developed countries. The trade group says the nations selected have a "distinctly different mortgage market and product configurations."
MBA found that although FRMs dominate in the U.S., they do not overseas. In 2009, for example, just 1% of loans made in Spain were FRMs. In South Korea, Canada, The Netherlands, and Japan the ratios were 2%, 10%, 10%, and 22% respectively.
