2016 has been a year of big changes.  The Chicago Cubs won the World Series after 108 failed seasons, the Cleveland Cavaliers won their first title ever (and the first sports championship for Cleveland in 52 years), and oh yeah, Donald J. Trump will become the 45th U.S. President on January 20, 2017.  The changes, however, are not limited to just sports and politics.  In the closing weeks of the year, the mortgage industry is beginning to come to grips that big change is on the way.  Consumers looking at potentially buying a home in 2017 should be aware that they will likely see a different lending environment, for two major reasons, according to The Wall Street Journal: interest rates and regulation.

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First, interest rates: after remaining stubbornly low throughout Barack Obama’s entire presidency, there is a good chance we will see a sharp increase in mortgage rates, based on market activity in the wake of Trump’s victory.  In the two days following the election, mortgage rates rose by a quarter-point, to 3.87%, thanks to increases in bond yields.  Bonds are generally considered a safer investment than mortgage securities, and both are tied to each other, meaning when bond yields rise, so will mortgage rates.  Additionally, it is a near-certainty that interest rates will rise at some point soon, which will only further drive up mortgage rates.  While a quarter of a point doesn’t sound like much, the difference is (as Trump himself might say) "Yuuuge"!  At a rate of 3.62%, a $300,000 mortgage will cost you $1,367 per month ($492,232 after 30 years of principal and interest); bumped up to 3.87%, that monthly payment rises to $1,410, and it will add another $15K or so to your 30-year total.  And that change in rates happened in 2 days.  Not only could rising rates make it more difficult for borrowers on the edge of affordability, but it is likely to have a negative effect on home prices, with one estimate suggesting one-third of the nation could experience falling home prices by the end of next year.

As for regulation, this one is more of a wild card.  What President-Elect Trump intends to do, and what a Republican-dominated Congress is able to do, is unclear.  If for instance, the regulatory regime constructed under the Dodd-Frank Act is largely wiped out, it will mean chaos in the financial sector.  Lenders have spent untold millions working to comply with new regulations and guidelines, and that can’t be reversed quite so easily.  However, an administration (including a Department of Justice) that takes a more moderate position on enforcement and litigation may have the effect of loosening up lending a bit.