New Bank Legislation Shouldn't Change Refinancing Too Much

[Apr 25, 2010.]

 

Nowadays, whenever an important piece of legislation appears imminent, as is the case this week with Senator Dodd's banking reform bill as the main topic of Congressional conversation, many individuals look at the new law in a "What's in it for me?" manner. Whether this is the best attitude or not is irrelevant to the fact that it's reality: people want the government to pass laws that benefit them directly.

On that note, of direct benefit, from the perspective of a homeowner looking to refinance, what is the "in it for me" element in this new legislation that seems likely to pass within the next month?

Dodd's History of Refinance Troubles Create Doubts About Dodd's Credibility

It's ironic, if not outright ridiculous, that Senator Christopher Dodd of Connecticut is the primary author of this new banking legislation, if only because Senator Christopher Dodd of Connecticut has been at the epicenter of everything that went wrong with the mortgage markets over the past decade.

In 2008, Dodd helped write another piece of legislation that asked the Federal Housing Administration to pay lenders in order to refinance people's home loans. This did in fact happen, as the seeds of this thought later grew into the Home Affordable Refinance Program, or HARP.

Although it's true that this HARP program has prevented foreclosures from becoming a complete epidemic, foreclosures are still becoming, well, a complete epidemic. Meanwhile, the banks that made these horrendously irresponsible loans have been able to transfer the risks of the refinanced loan defaulting pretty much completely onto the balance sheet of the federal government.

And then there is the sweetheart "special discount" deal that Dodd allegedly received on the refinance of his own home, from Countrywide. That was another gem.

So yes, probably the well is a little poisoned in terms of Mr. Dodd rewriting refinance rules.

New Bank Legislation Doesn't Much Talk About Mortgage Finance

The Dodd bill, it appears, has stayed largely away from re-regulating refinance borrowing.

No new law saying that sellers can't finance mortgages for buyers, no new law saying that banks can't do adjustable rate mortgages, and no new law saying that banks have to refinance borrowers who, if no refinance is forthcoming, a foreclosure will happen soon.

In other words, not much to see here from the perspective of a homeowner looking to refinance. A lot to see from the perspective of people who take out bad credit personal loans, but not a lot to see if refinancing is the reason why you care about this bill.

 

About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.