Real Estate Policy Changes in the US and its Impact [2000-2010]

   A true mark of a good real estate professional is to know how the housing market works. While it is known to be one of the safest forms of investment, the housing market is prone to policy changes like any other industry.

In the United States, the real estate market has undergone significant changes. Every realtor looking to enter the sector should be aware of and understand the implications of such changes.

The first decade of the 21st century was marked by great reform in the US housing market after a series of high fluctuations.

Here are a few of the major policy changes that influenced the real estate industry throughout the years 2000 to 2010. 

The Early 2000’s - A Housing Boom and Regulatory Oversight

In the early 2000’s, policies were lenient. It was fairly easy to get a housing loan because there were minimum restrictions by banks and lending institutions.

Because of these lax real estate policies, many people were buying houses and taking out mortgages, even when they could not afford to do so.

How were people, who can’t afford houses, taking out housing loans?

Since there were minimum restrictions on real estate lending, many financial intermediaries were providing subprime mortgages to people with low credit scores with zero or minimum collateral requirements. 

This enabled people with no assets or money to secure mortgages and housing initiating a housing boom. While the government did initiate some restructuring in overall governance, they weren’t rigid enough to bring an impact.

The Late 2000s - The Burst of the Housing Bubble and the Age of Regulatory Reform

Once the housing market collapsed, it became clear how lenient real estate & financial policies had impacted the industry. People who were not financially stable were unable to pay their mortgages and had to give up their houses for foreclosure.

In a response to deal with this housing crisis at hand, policy makers passed a restitutive Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. This was a first of its kind reformatory Act that clearly provided a way forward for the US.

Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Act was revolutionary for the US real estate industry and brought significant oversight and changes. It is considered as one of the most notable policy changes in the US that drove the real estate industry towards positive and inclusive housing.

Here is a brief description of what the Dodd-Frank Act outlined that impacted the US real estate industry:

Establishment of New Regulatory Powers

The Dodd-Frank Act paved the way for the creation of new regulatory agencies like the Consumer Financial Protection Bureau (CFPB).

In an attempt to control the US real estate market, the CFPB set forth to protect individuals from predatory lending practices by financial institutions. 

This predatory lending was the main factor that enabled low-income households to secure mortgages and housing in the first place.

Hence, the CFPB was now overseeing all mortgage lending and other financial products to ensure that all lending was standard and fair.

Minimum Standards of Credit Underwriting

The main cause for the US housing market crash was the lack of quality underwriting. The Dodd-Frank Act mandated minimum requirements and standards of credit underwriting to ensure that all loans meet a standard quality check.

The main rule here was that from 2010 onwards all borrowers could only secure mortgage loans based on their income, assets, and other unsettled debts. This was revolutionary in reducing subprime loans, and built a strong financial and real estate system.

Risk Retention for Lenders

A lack of moral values was one of the leading causes behind the burst of the housing bubble, where many lenders clubbed subpar mortgages and sold them to investors.

The Reform mandated that all lenders must retain a certain portion of the loan risk before selling it further. Once the lenders realized that they were also at the risk of losing their money, it became easier to control real estate lending.

Introduction of Transparency in Mortgage-Backed Securities (MBS)

Once it was discovered that a major portion of mortgage-backed securities were subpar real estate loans that were buried within other loan instruments, the Dodd-Frank Reform required more transparency from financial intermediaries.

The Reform introduced measures where these security instruments needed to clearly highlight the details of the mortgages that underlined these securities. 

Because of this transparency, standard quality was ensured for all lenders, banks and financial intermediaries. Proper and thorough credit ratings were assigned to each loan and security before a sale. Hence, a strong financial instrument took precedence.

Assistance for Homeowners at the Risk of Foreclosure

Finally, the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 not only aimed to change the way forward, but also to correct the past.

Considering that numerous US residents lost their housing due to foreclosure and the inability to pay mortgages, the legislation also aimed to protect them. 

The Dodd-Frank act introduced various programs for US residents to help them through this difficult time in their lives. These programs aimed to modify and refinance some loan arrangements that were aligned with the homeowners’ financial plans.

These were the main points of change put forward in the Dodd-Frank Act that helped reinstate and stabilize the US real estate industry.

Reform: Real Estate Policy and the US Housing Market

The first decade of the 21st century proved to be a decade of reform for real estate policy and the US Housing market. It strengthened the importance of appropriate policy and reform in the nation and for the real estate industry.

The housing market crash was unprecedented and was a clear warning sign for lawmakers and legislators.

The Dodd-Frank Reform and Consumer Protection Act was equally monumental for the US and the housing market, and clearly outlined the corrective measures that people needed to take.

Many professionals and world leaders have applauded the Dodd-Frank Act in comprehensively correcting all the governance oversights that caused the real estate industry to crash.

It is a notable piece of legislation for the US, and realtors must go through the document to understand its significance.