Question by : What will financial form mean for the mortgage analytics industry?

Best answer:

Answer by Jim
According to mortgage analytics firm Heitman Analytics…who knows? But it’s fun to read up on others’ projections. Read the full post at http://blog.heitmananalytics.com.

Finance forecasts and projections abound with financial reform now right around the corner. It’s all white noise, of course, until the chips begin to fall. But one thing is for sure: it’s bound to shake up the way we all approach mortgage analytics. And this industry has certainly seen its share of changes in the last couple years. But while we’re not putting too much stock in all the prognoses circulating the web, we do think it’s important to stay tuned in. Here are a couple we’ve been paying attention to lately…

…and The Huffington Post has these thoughts about how the impending bill will impact the mortgage industry in particular:

The Bill is Jet Fuel for Concentration of Mortgage Risk: One of the likely outcomes of the bill is that the largest financial institutions will increase their already bloated share of the mortgage market. Five banks today control in excess of 65% of the mortgage market — the financial bill will accelerate this trend by favoring banks over independent lenders. This was a deliberate decision pushed by Chairman Frank and the administration on the theory that large banks were easier to regulate than myriad independent lenders. Thus risk retention requirements, compensation rules, and licensing standards are all tilted toward large banks. The result is that the big will get bigger — and the level of mortgage risk will concentrate further — though the administration argues that more competent regulators and safer mortgage products alleviate the concern about “too bigger to fail”.

Indefinite and Increased Government Support for Mortgage Market: The bill further increases the dependence of the mortgage and housing market on federal support. Private capital is already scarce in housing — over 95% of mortgages today are guaranteed directly or indirectly by FHA and other government agencies. Private securitizations will be helped by new rules that create transparency and requirements that rating agencies do their homework before rating a mortgage security. But other parts of the bill impose new liability on securitizers for the underlying mortgages originated by third parties, and requirements to retain capital when transferring risk. The full contours of these rules won’t be issued by regulators for 2-3 years — extending a period of uncertainty that has dissuaded private investors from restarting the flow of mortgage capital. Meanwhile, the federal footprint in mortgages will become deeper and deeper in order to keep the housing market from the dreaded double dip — and making the unwinding of federal intervention that much more difficult.

A Smaller Mortgage Market With Fewer Qualified Borrowers: The new law places significant hurdles to offering any mortgage products outside the “plain vanilla” category. Regulators must define what is inside or outside the plain-vanilla box. Clearly, firm regulation of mortgage products is necessary in light of the subprime meltdown. But exactly where regulators draw the line will have a substantial impact on what kind of mortgages are available and which borrowers will qualify for a mortgage. Already we have seen that non-traditional borrowers have virtually fallen out of the home-buying market, other than thru government guaranteed FHA loans. Last year, rejection rates for African American and Latino borrowers skyrocketed for non-FHA loans. Will new mortgage standards be flexible enough to allow for reasonable credit risk determinations — or will plain vanilla mortgages mean plain vanilla homeowners?

Know better? Leave your own answer in the comments!