July 5, 2007

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Publisher's Note: Mortgage re-regulation
By Jody Reese

Responding to the large number of home foreclosures, state government is seriously considering licensing the people who sell mortgages. This would be a costly mistake for people who want to own homes.

As it is now, the mortgage broker and mortgage lenders are all licensed by the state, but the sales people who work for those brokers and lenders are not.

New Hampshire’s Banking Commissioner Peter Hildreth favors the new regulations, saying as it is there is no way to keep “bad actors” out of the mortgage selling business. The big reason behind this is that these mortgage sellers are the front line in the mortgage business. They are the people that help applicants fill out forms and navigate the different types of mortgages. Many feel that riskier forms of mortgages were over sold and in some cases the down sides of more exotic mortgages weren’t properly disclosed to the borrowers.

The real culprit here is the banks and Wall Street that lowered their lending standards to make lots of money. Investing is really very simple: high returns (big profits) equals big risk. These mortgage buyers made billions and billions of dollars by betting that property values would continue to rise, protecting their risky mortgage bets. Unfortunately for them, their bets were wrong and now many of these hedge funds (the ones that ended up borrowing a good chunk of those risky mortgages) are looking at billions in loses.

Wall Street was so hungry for these big profit mortgages that they pushed them down the line to mortgage brokers and then on to the public. If home values had continued to rise, there would have been no problems. But Wall Street’s bet didn’t pan out.

Licensing mortgage sellers wouldn’t stop people from agreeing to risky loans or from homeowners using them as long as Wall Street wants those fat profits and the risk that goes with it. And isn’t that the way it should be? All the licensing process will do is raise the cost of borrowing for the rest of us by increasing fees to pay for the licensing process and by making it harder for people to get in and out of the mortgage selling business. The men and women who go out and sell mortgages are no different now than they were 10, 20 or 30 years ago. The change has been in what kind of mortgages are now being offered and to who they are being offered to. It’s also important to add that homeowners have a responsibility to make sure that they can repay the loan. Many homeowners knew the risks of some of the more exotic loan options, such as adjustable rate mortgages, and used them to buy homes they couldn’t otherwise afford.

If some mortgage sellers lied to mortgage applicants about the terms of the loan or in some other way misrepresented the loans, then that person should be prosecuted for fraud. New licensing is not needed to enforce laws that are already on the books.