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Government Regulation of the Mortgage Industry - What Role Should They Play?
With the Presidential race heating up it appears as though everyone has an opinion. But what role should they play? And more importantly, why should we listen to them?
Government regulation of the mortgage industry is a topic of great interest on industry discussion boards across the internet. Should the Goverment get involved or shouldn't they, this is the basis for the debate. I doubt I will be able to solve this debate in the space of one article but I wanted to discuss what implications any regulation, or lack thereof, may have on the mortgage industry.
There are basically two camps, those who believe the government should provide more regulation and oversight of the mortgage industry and those who think the market should remain free of government intervention and should be left to figure things out for itself. For what my opinion is worth, not much according to last years tax returns, this debate is a little late. The simple fact of the matter is that the government is already intimately involved in the regulation of almost every aspect of our lifes including the mortgage industry and we need to refocus the debate to how to provide the most efficient and effective regulation of the mortgage industry instead of whethere we should or shouldn't have any regulation in the first place.
Let me explain. The mortgage industry is in some way or another regulated by the Federal Reserve Bank, the Federal Housing Administration, the Department of Housing and Urban Affairs, the State Governments, the Federal Government, Consumer Protection Groups, Individual Banks, and many more groups jockying for authority. The problem is not neccasarily that there is no oversight or regulation, it's that the regulation and oversight is inefficient, ineffective and just plain worthless for such a dynamic industry as the mortgage and finance industries. My proposal, if I could be so bold as to call it a proposal, is to streamline and organize the regulation into something that everyone in the industry can understand. Right now if you want to be a mortgage broker in all 50 states it's going to cost you around $200,000 and 2 years of your life taking tests for every state, paying lawyers to fill out basically the same paperwork in every state, and traveling around the country trying to figure all this out. If you want to be a lender you can just forget it, it is not possible for a small business to even try and it's not because they dont' know the mortgage business or are unethical or incapable of running a business that spans the country it's that they, simply put, don't have the resources to pay for licensing.
My point here is that the chaos that governs the mortgage business is completely useless. To prove my point look at the last 3 years, the banks ran themselves off a cliff and everyone just stood there watching, thinking that we needed more regulation to prevent this from happening. We had regulation, we had oversight and it didn't work, why not? It didn't work because all the regulators and oversight people just stood there scratching their heads wondering who was responsible for actually doing something and no one stepped forward.
There are those who will say that this just proves that the government should stay out of it and let the markets work and sort themselves out. I would tend to agree with this because I don't think the government does a very good job at this and it's not hard to figure out why. They are politicians not CEO's, and they don't ever do anything until something goes wrong and then they just run around trying to get on TV talking about how they are going to "fix" this so it never happens again. Do they have a degree in economics? An MBA? Experience running a financial institution?
Although I don't often have usefull things to say about the political people running things I do realize that there has to be regulation and oversight. If there was none the banks would go crazy, if no-one was checking underwritng standards or looking at appraisals, or answering complaints about how some lousy lender took some nice citizen to the cleaner then our whole industry would fall apart. Homeowners would not trust the banks, they would not borrow, the costs of borrowing would go up, and things would rapidly fall apart. It would basically be what has happened in the last few years but this problem would just continue to happen every few years in very viscous cycles. We need some regulation and control because, sadly, humans are just not that good at maintaining rationality, we tend to over react or become a little irrational at times and we need someone with an independent eye to help keep things on an even keel.
How do we do this then? Well, this is where it's complicated and I don't claim to have all the answers. What we need to do is find a way to nationalize the oversight of mortgage brokers and banks. Make it simpler, not easier, just simpler, for brokers to obtain national licenseing, this will provide more competition and will drive down costs, it will allow states will smaller population to have access to more lending choices. It will allow the better brokers easier access to more markts pushing out the bad brokers who survive because of lack of competition in their state. Providing a national license will give homeowners a better understanding of who they are working with, you will be able to check with one oversight group to get the information you need to decide if you want to work with that lender or not. We need politicians who don't just hit the talking points and jump on the more oversight, down with corportate profits, i'm going to solve all the problems if you just vote for me bandwagon. We dont need more oversight or less oversight, we need more effective and efficient oversight.