New political reality could shake up nation’s mortgage market

Big changes likely coming to banking regulations, interest rates

Potential changes to banking regulations and rising interest rates under a Trump presidency could upend the mortgage market in the United States.

The course of the housing recovery, the availability of credit to borrowers and the amount of risk that lenders are willing to take on could all be affected by any changes to regulations and interest rates, the Wall Street Journal reported. The structure of the mortgage market — in which banks currently favor standard and jumbo loans, but nontraditional lenders offer riskier debt — could also be affected.

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While Trump [TRDataCustom] does not officially become commander-in-chief until Jan. 20, markets have already reacted to his upcoming presidency. Bond yields and mortgage rates have risen rapidly since the election. In the two days following Trump’s victory, the average rate on a 30-year fixed-rate conforming mortgage rose a quarter of a percentage point to 3.87 percent, according to the paper. Lenders are now worried that mortgages may become more expensive sooner than was expected.

“The ultimate problem is the impact of rising rates on home values,” Stu Feldstein, the president at mortgage-research firm SMR Research Corporation, told the Journal. “We’re back into a bubble condition in part because of low rates that have enabled people to buy houses much more expensive than their incomes could afford.”

Lenders are also watching closely to see if more “bank-friendly” regulations lie ahead. On Friday, Trump pledged to dismantle or greatly reduce the 2010 Dodd-Frank financial reform law. According to the New York Times, Trump has surrounded himself with advisors that are critical of the Federal Reserve, and support reining the central bank’s power and influence. [WSJ]Miriam Hall