page contents Mortgage News Digest: June 2011

Thursday, June 16, 2011

Government Regulators are High School Bullies - Picking on the Weakest Target

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Mortgage Brokers who are primarily small, independent, marginally capitalized businesses, have consistently been blamed for lack of transparency.  Even though the mortgage broker business model is singularly a sales function, with no ability to create products, dictate rates or approve loans, the government has chosen to blame the housing meltdown on this segment.  The punishment meted out by the regulators as a consequence have pushed the industry from a 68% (or 80% depending on whose numbers you believe) market share in 2007 to 6.9% market share in 2011.  The government regulators are no different from the high school bullies - they pick on the weakest victim.

On the other hand, it's business as usual at the powerful and well-capitalized investment houses that created the products that caused the meltdown. Unbelievably, these houses have even been granted favor and powers by being given bank charters to further their objectives.  Once again, they sit on the opposite side of their original trades, looking for distressed assets to purchase at a substantial discount.

Take a critical look at Goldman Sachs' defense of its marketing techniques.  DealBook says it "harmed the capital markets." "Instead of selling something — thereby decreasing the price or supply of it — and giving the market a signal that it was less desirable, Goldman did the opposite. The firm created more mortgage investments and gave the world the signal that there was more demand, for C.D.O.'s and for the mortgages that backed them." And the paper said, "By shorting C.D.O.'s, Goldman distorted the pricing of the underlying assets. The bank could have taken the securities it owned and sold them en masse in a fairly negotiated sale, though it likely would have gotten less for them than it was able to make by shorting the C.D.O.'s it created."

Investment banks which trade on their own account are, by definition, unable to fairly represent the interests of the public.  By the ethical standards of the investment industry, it is perfectly OK to buy an insurance policy on your neighbors house, with you as the beneficiary, even though you know it's burning to the ground.

The fact that none of the investment houses has been impacted by the new regulatory schemes is a clear example of the lip service being paid to enforcement.  Even the sweeping Dodd-Frank reforms do little to change the business structure.  Yet the government continues to find an easy target in the consumer lending world.  Let's regulate the unfettered regulators.  It's time for the principal to stop their bullying and make them tackle the real problem.

Tuesday, June 14, 2011

We Need LESS Regulation, NOT More

History is repeating itself in reverse as the Federal government imagines a world without mortgage lending.  The Great Depression spawned the creation of FHA, which allowed for smaller down payments and 30 year loan terms. The wide availability of financing actually precipitated that depression's housing recovery and the subsequent economic boom that launched the prosperity we have experienced for the last 70 years.

Today we are in the midst of the worst depression SINCE the great depression. Some would argue this one is WORSE and from a quantitative foreclosure and unemployment magnitude perspective they would be right - there are more foreclosures and unemployed people today than during the Great Depression. 

Wave after wave of misguided regulation in the name of risk prevention is like buying insurance AFTER the accident. This is pushing lenders OUT of the market at the WORST possible time. Secondary is DEAD except for the agencies and they are talking about getting rid of them. Really??

Dodd-Frank, Risk Retention, Servicer Lawsuits, Elimination of GSEs, increased downpayments, legislating compensation, larger down payments, OCC/FDIC/Fed regulation of non-bank financial companies.... it goes on and on. The biggest problem they are having in Washington is finding enough lawyers to write all the regulation... seriously - that's what Elizabeth Warren said.

Legislating a 20% down payment with the idea that this will eliminate risk and help the recovery shows how mis-guided and uninformed the legislators are.  FHA was created in 1934. It allowed homebuyers to put less than 20% down. So, in modern times, smaller downpayments have always been available for affordable housing. Private Mortgage Insurance, which allowed smaller downpayments on non-government related mortgage loans, re-entered the US housing market in 1957 (MGIC), and became mainstream in 1961 with the drafting of a model mortgage insurance law for all states to adopt. 

I read a blog posting in support of larger down payments that read "There was always a 20% downpayment until a few years ago." It's this kind of thinking that is spawning this counter-effective legislation and regulation.

For 5 decades, when there was an economic slowdown, we looked to real estate to pull us out of recession. Now we are doing everything in our power to shut it down. Where's Ronald Reagan and the Keynesian Federalists when you need them?

Thursday, June 9, 2011

Rodney Anderson's Campaign Shows we CAN Get Something Done ...

...When We Put Our Minds To  It

A mortgage broker, Rodney Anderson, has single-handedly pushed for legislation that requires medical bills of $2,500 or less to be expunged from credit reports if the debts have been paid or settled.

Anderson, the executive director of Supreme Lending in Dallas, began a one-man crusade in 2008 after seeing so many home loan applications denied because of unpaid medical bills that had dinged the applicant's credit report.

Legislation introduced last week by Reps. Don Manzullo (R-Ill.), Ralph Hall (R-Tex.) and Heath Shuler (D-N.C.), would allow consumers to have medical debt that had gone to collection but was subsequently paid or settled expunged from their credit report.

"When you walk out of a hospital or lab, there's no check-out line to pay your bill, and then later you get a collections notice," Anderson said.

John Ulzheimer, a credit expert who is president of consumer education at, said messing with credit reports is generally a bad idea."Medical debt is an extraordinarily reliable indicator of credit risk," Ulzheimer said.

The Fair Credit Reporting Act already requires that inaccurate, outdated or unverified debts be removed from credit reports, which would cover any foul-ups by insurance companies or illegitimate collections.

Ulzheimer also doubted Anderson's claim that the legislation would boost mortgage lending by 15% to 20%.
"No one who actually lends their own money is supportive of this," he said. - From American Banker