When the housing market collapsed from the sub-prime mortgage crisis in 2008, the blame was laid squarely at the feet of banks and brokers who deliberately approved loans they knew were doomed to fail. In the years since the initial collapse, lending has become much more restrictive as lenders, buyers, and the federal government fight to avoid another crisis.
In fact those restrictions are about to get much stricter beginning in January next year. The Consumer Financial Protection Bureau or CFPB, which informs mortgage applicants about the terms of their agreements with lenders, wants tougher mortgage lending rules to restrict the volume of new loans in 2014.
The CFPB argues the rules are necessary to protect American households. Average household debts across the country are near record highs, with a large percentage of those debts tied up in household financing.
But critics believe that the new rules could go too far, and reverse the newfound strength in the housing market after years of stagnant growth. Americans are feeling confident about their plans to buy homes, but the new CFPB rules could mean as many as 50 percent of current applicants will be rejected by the new year.
A proper middle ground is required. The US – and the rest of the world by extension, cannot afford to go through another global meltdown similar to the crisis begun in 2008. This means that restrictions must be in place to prevent the type of sub-prime mortgage lending that led to the housing collapse.
On the other hand, rules that are too restrictive will prevent a greater number of applicants from being approved for financing. If there are fewer people qualified to buy homes, the housing recovery will stall, if not reverse entirely. Americans across the country are nearly unanimous in the belief that the housing market is crucial to the economic recovery as a whole – stalled progress on housing could mean another slide in economic stability.
The important thing for policymakers to remember is what Americans have come to learn on their own – balance is essential. People will continue yearning to own a home of their own, but recognize they must fulfill that dream through a mortgage that is affordable. Comparing offers from multiple lenders prior to locking in an agreement can help people get the best possible deal without committing to terms that are doomed to fail.