Advice for Consumers
Do some laws do more harm than good?
In Lehman’s Terms
I saw a driver run a red light recently and it got me thinking about laws. There are laws that benefit our society, and laws that arguably do more harm than good.
But what about laws that are just unnecessary?
These unnecessary laws often seem to be among the most intrusive into our daily lives and lead to a lack of trust in our government. Nowhere is this truer than in Washington, D.C., where our federal government has reached new lows in public confidence.
Laws with consequences
Most unnecessary laws can be classified into a category I call the Laws of Unintended Consequences.
Every day, private citizens must attempt to live and do business in a system that is fraught with layers upon layers of legislation that was passed with the best of intentions but ultimately collapsed thanks to unintended consequences.
A great example of this was the attempt by Congress to respond to the 2008 financial crisis with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
An attempt at reform
Dodd-Frank was a quick-fix congressional action designed to rein in Wall Street and squelch the actions of unscrupulous lenders to protect the consumer—certainly an honorable goal.
Except that the act created a bureaucratic quagmire of governmental regulations that add considerable cost to real estate transactions, delay closings, and prevent qualified homebuyers from obtaining the American Dream of homeownership.
The regulatory authority of Dodd-Frank was ultimately turned over to half a dozen federal agencies and led to the creation of two new agencies, one of which is the Consumer Financial Protection Bureau.
As an example of the challenges Dodd-Frank created, a CFPB initiative implemented last year has made it difficult for real estate professionals to obtain copies of their clients’ closing documents. This is a common practice that enables real estate agents and brokers to answer clients’ questions and look out for their best interests. After much lengthy outcry by real estate professionals and consumers, the CFPB is now considering reversing course and proposing updates to this unnecessary rule.
This relatively new agency has far-reaching supervisory powers over most financial institutions. And for the first time in history, a federal agency now has jurisdiction over many non-banking financial companies, including mortgage companies. To me, the worst part of the CFPB is that it operates outside the purview of Congress.
In Lehman’s terms, this means Congress created a superagency with significant enforcement powers to levy fines and penalties, but Congress has no oversight over the CFPB’s actions.
Most lawmakers agree that Dodd-Frank went too far and has actually hurt some of the consumers it was trying to help. Unfortunately, any repeal or reform efforts have been thwarted by congressional gridlock and partisan bickering.
Fixing—and avoiding—the problem
The Laws of Unintended Consequences are not limited to the federal government.
Just like at the federal level, repealing a state law is a difficult—if not impossible—proposition. The solution is something Texas lawmakers discovered decades ago, and no matter how much our state changes, lawmakers haven’t compromised this basic premise of lawmaking: The best way to avoid unintended consequences of laws is to not pass those laws in the first place.
Texas does this by avoiding knee-jerk reactions to isolated and often minor events. Most state legislatures have followed the federal government model and now meet on an annual and almost full-time basis.
The Texas Legislature meets only for 140 days every two years. This gives lawmakers plenty of time before session to slowly and deliberatively consider legislative intent of laws and the consequences of their actions.
This system works, and it’s what makes Texas the free-enterprise envy of the nation. That is an intended consequence to be proud of.
Mark Lehman is vice president of Governmental Affairs for the Texas Association of REALTORS®.
These loan programs can help you buy and renovate that fixer-upper
It's tough out there right now for first-time homebuyers. Even though home sales are rising, the share of first-time buyers fell in 2015, according to data from the National Association of REALTORS®. Part of that is the difficulty of saving for a downpayment and strict financing requirements, but in many areas, the inventory of appealing, entry-level homes is limited.
Where there is a dearth of updated or move-in-ready homes for first-time buyers, some will consider buying a fixer-upper. If that's you, make sure you know what your options are for financing the purchase and renovation of your first home. While using a traditional mortgage to purchase the home and financing the renovation separately is an option, there are loan products that combine the cost of the home and the renovation in one payment.
The Federal Housing Administration's 203(k) program allows homebuyers to finance $5,000 to $35,000 in renovation costs as part of their mortgage. Many of the same rules and restrictions that apply to typical FHA-insured single-family residential mortgages also apply to 203(k) loans, but there may be more fees charged by the lender for additional services that are part of the 203(k) process. The value of the property must fall within FHA limits for the area, as well. With this program, the money is held in an escrow account and released as the work is completed. Like other FHA products, insurance is required throughout the life of the loan. Interested buyers can find a lender using HUD's online tool.
While the 203(k) program is limited to primary residences, FannieMae's HomeStyle Renovation mortgages can be used for one-unit second homes or investment properties. HomeStyle mortgages are more like traditional mortgage products in terms of requirements for downpayments and private mortgage insurance, where mortgage insurance can be dropped after a set amount of equity in the home is reached. The amount buyers can borrow through the HomeStyle program depends on either the post-renovation value of the home as determined by an appraiser or the purchase price plus renovation costs, whichever is lesser. HomeStyle loans are also subject to conventional mortgage limits. Unlike the 203(k) program, there is no online tool to find a lender that deals in HomeStyle mortgages.
Work with your lender and your Texas REALTOR® to get the property that's right for you.
What is a Texas REALTOR®?
Not all real estate agents are REALTORS®.
Only those who agree to abide by a code of ethics that goes beyond what the law requires may join the Texas Association of REALTORS®.
Read the REALTOR® Code of Ethics
Texas REALTORS® do more than help you buy and sell real estate
They protect the rights of property owners. They fight proposals that would increase the burdens on buying, selling, and owning real estate. And they bring property-owners’ concerns to the Legislature, regulatory agencies, and local authorities.
Learn more about how Texas REALTORS® can help you