Magazine article Mortgage Banking

Is the Medicine Hurting the Patient?

Magazine article Mortgage Banking

Is the Medicine Hurting the Patient?

Article excerpt

About a year ago, I suggested in this magazine that there were valuable lessons about recovery from Hurricane Katrina to be learned by our government in the face of a growing national recession and an unprecedented mortgage crisis. As an owner and president of an independent mortgage banking company affected by both events, I am disappointed that what I feared most from the "rulemakers" is actually happening.

Although reform was definitely in order, overreaction has dominated, and the result is a measurable increase in the costs of obtaining a mortgage and a decrease in single-family housing transactions. We are now dealing with an overdose of new and sometimes biased legislation and regulation. Much like a natural disaster, those most affected are borrowers, housing itself and companies like mine that bring the two together.

My company is the largest independent mortgage banker domiciled and servicing loans in the Gulf Coast region during two of the worst disasters in U.S. history. Following Hurricane Katrina, we were faced with the mixed challenge of managing a recovery plan that would restore value to our asset and save our company, but not at the expense of borrowers suffering from the same disaster. It is too early to assess the effects of the other disaster--the BP oil spill.

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Let me say very early in this column that this is not a discussion of the effects of Hurricane Katrina; we are moving on as a company and a city. A high-ranking executive with a governmental lending agency told us very bluntly that "everyone has a story," so my references to Hurricane Katrina are not for pity but rather for comparison.

It is true that, though far from perfect, the Katrina recovery plan was considerate of all of the participants affected by the disaster, while knowing that revival of the borrower needed to be kept at the forefront. By the way, the participants included government, investors, insurers, lenders and borrowers. Sound familiar? I fear that this time around as regulators attempt to medicate and revive the borrower in today's ailing housing market by overregulating the lender, they are in fact "hurting the patient."

The overdose

Although many of the new Real Estate Settlement Procedures Act (RESPA), disclosure and compliance requirements are complex, time-consuming and costly for lenders, they are at least consistent across all mortgage channels. Regulations created by Congress, the Department of Housing and Urban Development (HUD) and the government-sponsored enterprises (GSEs)--such as The Home Valuation Code of Conduct (HVCC), the Mortgage Disclosure Improvement Act (MDIA) and the 2008 RESPA rule, and this years' Loan Quality Initiative (LQI)--have put the mortgage industry on its heels.

Adherence to and management of the onslaught of new regulation will create monetary and non-monetary negatives for quite some time. While designed to be protective of the borrower and punitive for the lender, the complexity and increased transaction costs may actually end up hurting the borrower.

Has the SAFE Act created an unsafe harbor?

As a company, we are accepting of and adhering to the barrage of new regulations and the increased resources and costs associated with them. We are not so calm in accepting the ramifications of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) passed by Congress and HUD's expansion of this biased legislation. …

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