By Joe Silver
There is little doubt that the surprise win of Donald Trump in the 2016 presidential election means the mortgage business is due for some changes. Many analysts believe the Trump mortgage era could be positive for the economy but it doesn't mean that interest rates will keep falling. Below are the changes that we think are most likely in the Trump mortgage era:
This already happened in the first few days after Trump's shocking presidential win. In that time, rates went up almost ½ a point. Average 30 year fixed rate mortgages are now above 4% for the first time in more than a year. Here's why rates are up: Investors started to sell off their bond portfolios when Trump won. He has promised to lower taxes, increase deregulation and make more infrastructure investments. An economy that is growing with more government spending can mean higher inflation, and bond holders do not like inflation. So, as the bond prices dropped from all the bonds being sold, yields increased. Higher yields on bonds means higher mortgage interest rates. The Trump mortgage era could thrive as many expect banks to expand lending to increase homeownership among Millennials.
However, rates already have started to steady out only two weeks after his election. They could continue to stay elevated in the near term, and possibly drop a bit. But generally, a Trump presidency could mean more economic growth and higher interest rates, which is a good or bad thing depending upon your perspective.
The Federal Reserve stated this month that it is going to be increasing short term interest rates in December 2016. After that hike, there will probably be some rise in mortgage interest rates. This could be exacerbated by the Republican belief in getting the federal government out of the mortgage business. We are not sure what Trump's stance is on this, but it might mean a change of role for the Federal Housing Administration and possibly transferring ownership of Fannie Mae and Freddie Mac into the private sector. Some finance experts see an effort to cut government's role in the mortgage business could lead to higher rates. The argument is that if the government gives its approval to FHA and Fannie and Freddie, it does lower interest rates. But then the US taxpayer has to pay if the market collapses, which is what happened in 2009. There is still no specific Trump mortgage programs endorsed by the new program, but many anticipate something could be coming soon.
How much home prices will rise will depend upon your area, but if a Trump presidency leads to stronger economic growth, this could result in house prices inching higher. If the unemployment rate drops and the participation rate in the economy goes up, this will increase economic growth, which will put pressure on prices. Of course, rising home prices can be a good thing and a bad thing. It can be bad because it can make more people unable to afford a home. But if rising home prices signal stronger economic growth, rising home prices can be a good thing. Rising home values also are a great deal for homeowners, as they are making more money on their investment. They also will be able to pull more cash out of their home to spark more economic activity.
The Consumer Financial Protection Bureau was put into place ostensibly to protect consumers from aggressive tactics from predatory lenders. But Trump mortgage supporters argue that the CFPB makes it more difficult for many creditors to do business and this is reducing the amount of credit that is available to consumers. Trump also could bring in a new director of the CFPB, or possibly a panel of new directors that are more attuned to Trump's business friendly methods. If the new President decides to reduce the federal government's role in mortgages, there will be possibly higher rates, but a lower risk of a taxpayer bailout in another financial meltdown. We anticipate the Trump mortgage era to embrace cutting regulations that will likely reduce the costs of home buying and mortgage refinancing.
A full repeal of the Dodd Frank financial regulations passed in 2009 is unlikely, but Trump has stated publicly that he wants to overhaul the laws. He argues that Dodd Frank has made it harder for small banks to loan money. Trump further says that small lenders are unable to lend money to small business, and that curtails economic growth. Trump also recently noted after his election that Dodd Frank does not stop him from borrowing money, but it stops many small businesses from being able to expand. Republicans would like to see requirements being eased on smaller banks so that it is easier for them to loan money. Generally, the banking industry has appealed for Dodd-Frank to be amended but not completely overturned. Trump acknowledges that more bad loans may be made if there are changes to Dodd Frank, but there will also be more economic growth, which, he argues, is a good thing that will help the country. Many realtors and lenders believe that a tweak here and there to the lending requirements will expand credit for self-employed and first time home buyers that were unable to qualify for a home loan over the last few years. NPR reported that on November 16th, the Trump team said that "bureaucratic red tape and Washington mandates are not the answer" to improving the financial system. Read more about Trump Team Promises to 'Dismantle' Dodd-Frank Bank Regulations.
There is no question that Trump winning the presidency will have an impact on the mortgage industry and the economy generally. It remains to be seen exactly what Trump is going to do that will affect the mortgage industry. But we all know how incredibly important a healthy housing and mortgage market is to the American economy. The more people who buy their own home means that more money is spent on fixing up that home and buying furniture and other goods and services. Expect the Trump mortgage era to be bold and decisive just like his successful businesses. The more people who own homes, who can really afford them, the better off the economy is, generally.
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