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Making the case for mortgage insurance

National Mortgage Professional
May 09, 2005

Appraiser’s Perspective: Time for a national lending standardCharlie Elliott Jr., MAI, SRANational Lending Standard, predatory lending, mortgage legislation Most of us would agree that civilized societies, by virtue of human nature, must subscribe as a group to social, professional, ethical and legal norms. Even with these influences within our society, the system sometimes breaks down and society as a whole suffers from the actions of a few unscrupulous individuals who have little interest or empathy for their fellow man. We also have, within the umbrella of the home mortgage industry, our share of over-the-top and beyond-the-pale conduct by a few individuals who tarnish the image of our industry. Is this because we do not have enough rules and regulations, or is it because of the type of rules and regulations we have? Now I don't know about you, but from my vantage point, there certainly does not seem to be a shortage of regulations within our country and profession. The mortgage industry has been subjected to almost every kind of scrutiny known to mankind within the past few years. While most of the scrutiny comes in the form of laws or regulations, it does not stop there. We also find ourselves monitored, pressured, regulated and influenced by the press, as well as by civic, religious, political, social and educational institutions and organizations. At times, the pressures of our environment seem to become so onerous that we must question how much more of this regulatory overhead we, as people and professionals, can endure. There seems to be a tendency to gravitate in the direction of adding more and more laws and regulations in an effort to combat the problems caused by a very few. All too often, additional regulations do very little to affect the culprits, and the compliance burden is placed upon those professionals who practice in good faith. An example would be a 20 mile-per-hour speed zone created on a busy street where numerous accidents have occurred, only to find out that these accidents were caused by people who were not obeying the previous 45 mile-per-hour speed limit. The new, artificially low speed limit is now imposed on those drivers willing to abide by the law, while those who ignored the original speed limit are even more abusive in the new speed zone than they were before. This is a classic example of making our laws more restrictive while failing to enforce existing, less restrictive laws. It is inevitable that, as part of the price of living in such a dynamic and prosperous nation, we must expect a degree of bureaucracy not experienced by those living in less affluent cultures. Having said that, I am seeking the middle ground that I do not see our society moving towards. A prime example is the tremendous number of state banking laws that are inconsistent or incongruent with those of other states and/or the federal government. This may make sense if these states were in a vacuum and if mortgage and finance companies were not involved with interstate commerce. Perhaps there was a time when banking was local, but that ended many years ago. Tools and events such as the telephone, fax machine, Internet, bank mergers and the savings and loan debacle of the 1980s, coupled with the most mobile society ever known, have made banking in our country a national industry crossing many state boundaries. It does make sense for all of us to be concerned about predatory lending, bank fraud, usury and consumer privacy. But, why is it necessary for each of our 50 states, and the federal government to boot, to all have different laws and regulations on these issues? This is especially the case when we consider the fact that virtually all home loans are products of interstate commerce. From my perspective as an appraisal professional, virtually every loan transaction touches not just a couple, but a number of states and geographic areas as well. An example would be a borrower owning a home in New Jersey while working and paying state and city taxes in New York. He has a friend in Florida who is a mortgage broker who uses an appraisal management company headquartered in Alabama. The funding bank is in California, the PMI company is out of Chicago and, well, it goes on and on. You can probably think of more players in other places than I have, but you get my drift. What should be done about this mess? There should be one set of national standards for loan officers and one for appraisers. Each state should certify individuals from each profession through their professional certification boards as most do now, using common federal rules and regulations. The state would enforce rules but would not make them. There would be no emphasis on state borders. All continuing education should adhere to one national standard and be available anywhere. No professional would be required to have more than one state license, which like a drivers license, would be good in any state. State boards would be required to assist each other with rule enforcement, as the police do in state-to-state law enforcement. There should also be a national database to weed out the crooks attempting to take their criminal activity from one state to another. All lending institutions should be subject to one set of federal banking laws and regulations. Each state should be required to adopt these laws and to assist in their enforcement. Since predatory lending is a bad thing, it should be a bad thing not just in some states, but in all states. There should be a set of clearly written laws that must be followed in all states. This would save the banking industry billions of dollars and would also protect consumers better than todays laws. The same would hold true for other consumer protection issues. Other banking regulations pertaining to the financial strength of institutions would also be subject to one national standard and would be much easier to administer than todays cumbersome system. Duplicate and overlapping federal regulations from different agencies should also be consolidated, creating further efficiencies. We are only one country; why should we have multiple sets of rules and regulations? The aforementioned suggestions would serve our consumers and our banks much better than the current system. It would create efficiencies that would reduce the operating costs of banks and make loans more economical to consumers. It would be a fairer system for those professionals who constantly find themselves wondering if they are in violation of a law or regulation. And finally, it would be a system that would provide fairer and more consistent protection to the borrowing public. Charlie W. Elliott Jr. MAI, SRA, is president of Elliott & Company Appraisers, national real estate appraisal company. He may be reached at (800) 854-5889, by e-mail at [email protected] or through the companys Web site at
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