Trump Impact on Mortgage Lending

  • White House

When Donald Trump was voted in as the next president of the United States in 2016, the markets perceived that as a bullish event.

This means that money began flowing into the stock market like crazy, hitting highs on the Dow right away. What happens then is that this takes money away from the bond market, which causes the yield rate, the yield paid on these bonds, to increase — because of supply and demand.

Then, as bond rates float up, mortgage lenders use these bond yields as the basis for mortgage rates, which increase.

Future Potential Impacts: Deregulation

If Trump succeeds in achieving his 75% rollback on the Consumer Protection Act, mortgage lending could deregulate. We could go back to the era of the early 2000s and see opportunists come out with crazy-exotic loan products again. That could lead to an increase in buyers and a more competitive market — albeit potentially unstable again, as people talk or gamble their way into loans that they cannot truly afford. And we will likely again see short sales and foreclosures in new record numbers, in the years that follow.

Some loan products should never come back. I do not endorse that kind of irresponsible lending.

Loans for Self-Employed

However, if Trump’s modifications go through, a deregulated mortgage environment could help self-employed people. At that point we would see the return of true stated-income loans.

These loans, available previously, but not today, are for highly qualified individuals with good credit, income, and assets. These borrowers have been penalized because they write off expenses to take advantage of the tax code; which makes their income appear lower than if they did not take these deductions. This kind of scrutiny on expenses does not apply for W2 earners. Self-employed people can be locked out of getting a mortgage because their net income reported to IRS is dictating what size loan they can qualify for. So, this is a problem I would be happy to see solved.

See How the Loan Process Works for more.

 

About the Author:

Viral (pronounced like "virile") "Vic" Joshi is an independent California Home loan expert and licensed real estate agent who has been guiding home buyers through the mortgage loan process for over 20 years. Vic is an agent with the nationally licensed C2 Financial Corporation, offering preferred access to virtually any mortgage loan product available. He is a proud San Francisco Bay Area native, a certified Rescue Scuba Diver and a loyal Warriors fan.