Whether you are a real estate attorney, agent, appraiser or lender, you have, no doubt, felt the effects of mortgage loan government regulation, in recent years, and particularly, in recent months. Even among those whom have been less affected in the past, there is the constant threat of additional regulation coming down the pike. Over the past three or four decades, we have seen growing government regulation creeping into our industry at practically every level of government. Not only is the federal government involved, but every state has also found it necessary to get its finger into the pie, and some cities are even beginning to get in on the act.
Examples of the types of additional regulation include, new laws requiring banks to be very specific about closing fees, even before all of the facts are known about the borrower and the borrower’s property; regulations prohibiting mortgage brokers from ordering appraisals; laws requiring mortgage brokers to register at the federal level and attorneys to follow different guidelines for closing statements. Further, national appraisal management companies (AMCs) are now required to register, follow strict and varying guidelines and pay high fees in many states. Most states, as well as the federal government, are expected to follow suit. For a national AMC, registering at the federal level and in each state would require 51 registrations, 51 different sets of rules and 51 sets of fees. The fees alone are expected to run into the hundreds of thousands of dollars for each national AMC, which can only mean higher costs to the consumer. All of this regulation is in addition to, and on top of, other regulations, which, if properly implemented, should already be protecting the consumer.
Why is this necessary?
What is so wrong with our business model that requires so much government intervention? Is it because there is an overabundance of crooks in the business? Who is really benefiting from this regulation? Is it those purportedly being protected? Is the public benefit commensurate with the cost? Are government lobbyist culprits gaining excessive control by promoting the special interests of one group over another under the guise of protecting the public? We could go on and on with the whys and about the justification. When asked, most politicians claim that it is to protect the public interest. Suffice it to say, the system is a mess. Our system is already burdened with excessive and ineffective controls, supposedly designed to protect the public, while costing it an arm and a leg in unnecessary fees and administrative costs.
Further, the regulations that we have in place are, in many cases, not being enforced … case in point … the recent financial meltdown. With all of the regulation that we have in place, we are implementing new levels of regulation with the same or similar language, which has not proven to protect us in the past. It already is and has been illegal for mortgage professionals to commit fraud for decades, yet many honest and responsible professionals are being saddled with additional onerous and burdensome regulation, designed to accomplish the same objective.
An analogy would be that of the airline industry. The honest and faithful flying public continues to be burdened with additional inconveniences, such as that of not being able to carry a bottle of shampoo on a plane. Meanwhile, terrorists, who pay cash for a ticket, carry no luggage and have bombs in their underwear, are allowed to board, even though they are on suspected terrorists lists.
Is more regulation the answer?
In a nutshell, the answer to that broad question is “No.” Is better regulation and stricter enforcement is the answer? Yes. Our government has a responsibility to provide simple ground rules that are fair, not only to consumers, but also to all of the stakeholders in a transaction. In order to curtail excessive cost to the consumer and to support some semblance of a free market, regulation should be kept to the minimum required to protect the public interest. Regulation should be simple and economical. Processes should be developed not only to protect the public, but also to do so in a manner consistent with efficiency and common sense. The ground rules must not be developed along the lines of feathering the nest of special interest. They must only be to protect the public interest. That means that if we have too many professionals to service the legitimate demands of the industry, some of us should get out. Regulation designed to encourage the continuation of making loans to people who do not qualify for them, just to create a few phony jobs, makes no sense and should be stopped. Much more attention should be directed toward doing a better job of enforcing and tweaking the regulations that we already have in place. Up until and through the mortgage meltdown, all major banks were being audited, and their mortgage portfolios were being evaluated for soundness.
Unfortunately, much of the new regulation that we are seeing today goes far beyond that which is required to protect the public interest, while current regulations are not being adequately enforced. It is driven far too often by industry insiders, lobbyists, bureaucrats, labor unions, trade associations, large corporations or influential individuals, seeking to protect their own special interest.
Most, if not all, of the burden of complying with excessive regulation is borne by the consumer, taxpayer and small business. Paradoxically, the very people whom the regulation is designed to protect usually pay a hidden price and receive little or no protection. We are already paying a high price for protection, which we are not getting. Adding additional layers of regulation will be adding insult to injury. We were already paying for this service as taxpayers. Were we getting our moneys worth? I would say hardly so.
Charlie W. Elliott Jr., MAI, SRA, is president of Elliott & Company Appraisers, a national real estate appraisal company.