In the United States, roughly one-third of the population owns their homes outright with no mortgage debt; however, of those people in the United States which have mortgages or debt, the average value rose a substantial 40% from the turn of the century. In 2008, when the housing bubble burst, theories circulated as to the cause. One theory deals with lenders who were issuing loans to high-risk individuals in anticipation that they would default and insurance companies would pay them the indebted amount. This previously legal method has been combated by new government regulations and the complexity of issuing loans has increased.
In July of 2010, the Dodd-Frank Wall Street Reform and the Consumer Protection Act were passed which increased the restrictions on lending. For many Americans, this causes discouragement in buying a home and lending offices claim that stricter regulations will make it difficult for small offices to survive, but what are the benefits to society that surround stricter guidelines?
It would appear that the government is trying to prevent another bubble from forming, which, I believe, is exactly the point. Increased complexity in lending may make things more difficult to borrow, but this also implies that applicants must find some other alternative, such as pursuing housing which they can already afford. In the meanwhile, this may correspond to a lower demand for buying homes and causing the prices of homes to decrease. Eventually, as the market returns to equilibrium, buyers and sellers in the market will find each other again and prices will begin to stabilize.
With this crisis and reform came the inception of the Consumer Financial Protection Bureau.This office acts as a organizational watch dog to look out for consumer interests acting under the direction of a senate appointed director. For additional information see the resources below.
Resources:
Banking Senate
Dodd-Frank Cheat Sheet
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