Most legislation is created to solve a problem; for example, if there are too many people drowning on a beach, then a law might be passed to increase the number of lifeguards, or the hours of operation might be restricted, or some other action taken to address the problem. Most legislation includes the problem, the proposed solution, the enforcement authority, and the method of funding.

The Frank Dodd act is a little different; it created a high level organization like the FAA or the FCC; these agencies promulgate rules to keep the airwaves fair, or the skies safe. Because Congress is not an expert on telecommunications, nor on aviation, these agencies hire experts in these areas and promulgate rules. And, congress votes on their budgets every year.

Frank Dodd is different. The biggest difference is that the scope of the Act is massive; it includes almost every financial service relating to consumer housing that exists, including HUD. But that is not the biggest issue. The biggest one is that the agency that was created is funded by an allocation each year, based on GDP, directly from the federal reserve system. This year’s allocation was about 500,000,000. Yup, a half a billion dollars.

And while this agency is designed to protect the consumer, it is likely to have a chilling effect on the housing market. Rental rates are likely to increase, and lesser qualified folks, and first-time home buyers are going to suffer. And… someone deeply involved with this agency is going to profit, big-time. Because there will be two kinds of mortgage, starting January 10 of 2014. The Qualified Mortgages, wherein the borrower is very, very low risk, and the Other (or non-qualified) Mortgages. These will not be able to be sold to Fannie or Freddie, and so they will be higher cost, higher fees, better returns for investors. Where will they go? They will be bought by a hedge fund owned by … someone who was deeply involved in this agency.

Just gotta love Washington.

 

–PLH