Time for a national lending standardCharlie Elliott Jr., MAI, SRAnational standards, regulatory compliance, consumer protection
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
driver's 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 today's 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 today's 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, a 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
www.appraisalsanywhere.com.
