Monday, March 31, 2008

Do We Really Want Increased Government Oversight Of The Mortgage Industry?

The Bush administration is calling for a major overhaul of how we monitor the financial industry in what would be the largest financial regulatory makeover since the Great Depression. It isn’t as much oversight as many Democrats are demanding, but it is fairly substantial.

I am generally against added government regulation, so this doesn’t sit well with me. The government has a way of making things more complicated and costly than they need to be, and it is taxpayers who bear the burden. Increased regulations in the financial and mortgage industries will only make lending tougher. It seems that people want the government to protect them from themselves and from lenders who might take advantage of them. If the government gets involved, some people may be protected, but fewer people will receive mortgages. In an already struggling market in which it is increasingly difficult to find funding, the last thing we need to do is to make it even more difficult.

I expect that the regulatory agency will, at a minimum, call for increased documentation and transparency on the part of the lenders. I’m all for transparency, but the documentation is already overdone. When I signed the docs for the last house I bought, my hand started to cramp halfway through signing all the paperwork. If increased paperwork is all they do, and they do not become too restrictive, then the legislation shouldn’t have much negative impact, though it will mean more work for the loan officers, processors, lenders and escrow agents. If they start modifying loan qualifications and guidelines, or imposing penalties on lenders, it might scare many lenders out of even remotely related programs. If lenders become even more hesitant and restrictive, this only spells more bad news for the housing market.


Anonymous said...

Maybe they will create something like the 'Accredited Home Buyer' guideline similar to the accredited investor. We all know how well that hinders... a'hem sorry I mean ...helps us... Nothing like having government branches thinking for us.

Anonymous said...

I am a mortgage broker and to be honest I think it isnt all bad. As the plan is written it will level the oversight of all mortgage originators including the once exempt federally chartered bank originators. I am required to be licensed, educated, and pass background checks so dont you think its about time to seperate the good from the bad on a level playing field.

Eric Ames said...

Thanks for the comment, it is nice to get a mortgage brokers opinion on the subject. I guess I don't think requiring licenses for mortgage brokers is overall a bad thing, I mainly just don't like to see increased government involvement. This legislation certainly won’t help investors though, as they will have to chip in for the costs and it is mainly geared for people who don’t know what’s going on, and who are somewhat ignorant of the mortgage world. If it stops at the licensing piece, that's one thing, and ultimately it might be good. However, the government can at times get a little carried away and take things too far. Giving them this power has the potential to lead to additional changes down the road.

What I really don't want to see happen is as part of the financial oversight legislation for them to restrict banks on the type of loan programs they can offer. This is where I see the potential for trouble in the real estate market. I don't think this is currently part of the bill, however, many democrats are pushing for tighter restrictions, so who knows what will become of it when all is said and done.