(Regulatory) Inflation in the Mortgage Industry
Inflation is a term that gets thrown around a lot in economics. The definition of inflation is a sustained increase in prices for goods and services. Under normal conditions, inflation occurs because of market forces - supply and demand. We see this in every aspect of our life. Even without taxes and artificial increases in prices for the sake of profit, inflation is a constant. When market conditions move in a different direction, we see deflation.
In the mortgage market, when it comes to rates and fees, we've had deflationary forces. A market that can't support high rates, more informed consumers pressuring fees and costs lower, and a secondary market (although propped by QE and the Treasury) that offers a seemingly unlimited number of mortgage transactions.
In reality though, we've seen industry inflation on a grand scale. Pre-HVCC, appraisal costs were normally in the $300-350 range. Now, it's common to see a $450 price tag on even the simplest of appraisal assignments. Interest rates seem low, but compared to where they would be without government imposed G Fee increases (padded into the rates of course, so consumers can't see this tax) and loan level pricing adjustments (LLPAs -- again, padded into the rates so people won't notice just how much they're paying....hint....it's thousands....on every deal), rates are higher than they should be. Lender fees? They've jumped, too. Lenders have additional compliance staffing and technology in place to try to fend off the CFPB witch hunt, and the costs of these measures are passed on to consumers. A healthy level of inflation, according to the Fed, lies in the ballpark of 2% per year. Why then, has the mortgage market seen a jump in prices (when factoring in fee & rate adjustments) more akin to 50%?
Simple. Government involvement, over-regulation, and the fact that someone, somewhere, discovered that the economic collapse was a great opportunity to tax home owners, especially since none of the price increases are deemed "taxes".
Now, with the realization of TRID, the latest government monster, you'll see another tax - the rate lock tax. Lenders can lock an interest rate in for a client for a certain period of time - the longer the time period, the more costly the lock. A lock is consumer protection, and when working with a good mortgage loan officer, clients benefit from the guidance of their lender when it comes to a lock period. A good LO tries to lock their client into the shortest lock term that'll guarantee an on-time closing and great pricing for a client. In the recent past, a 30 day lock was standard. Under TRID, a 30 day lock is no longer the gold standard of lock periods. We've moved to 45. Some lenders have gone 60. What does this mean? Worse pricing (rates) for consumers, of course.
This isn't a HUGE deal, as the cost for a rate lock at 45 days isn't a great deal better than 30 days. But it's something to keep in mind - with appraisal costs higher, lender costs higher, interest rate adjustments MUCH higher, it begs to question - when is enough, enough?
The costs of everything go up - that's life. But in the mortgage industry, things have gotten out of control.