BluefoxToday blog : Mortgage industry faces more reforms

Mortgage industry faces more reforms

A high-powered economic panel has been meeting under the direction of the U.S. Treasury Secretary to seek solutions to the current mess in the mortgage and overall credit markets. The task is difficult, of course, because of the complexity the financial segment has grown into over the last several years. But something has to be done, tried at least, to get the industry back on the right path.

One of the favored recommendations of the working group is the careful overhaul of the mortgage broker sector that would require at least a national licensing system, if not more. Uniform mandatory licensing would definitely help put more teeth into the monitoring function of these lenders.

It appears, though, that whenever ideas are brought up to address the challenging credit situation, the mortgage brokers are often the first ones to be called on the carpet. Yes, there are some bad apples in the profession, but as a whole they were merely marketing subprime and other loan products that were invented by the large wholesale banks. That's their function, marketing. Be a conduit between the borrower and the wholesale lender. Legislating vast reform on them will miss the point.

The federal government has a host of departments and agencies that are tasked to oversee the home loan industry and the working group has reportedly also touched on their role in the present crisis. They ought to bring it to the top of the agenda, however. The existing laws in the books aren't perfect, but had probably averted much of the mess we are in the middle of now if those regulations had been properly enforced. Letting the industry police itself doesn't work. Besides beefing up the enforcement, the number of departments in charge of oversight should be drastically reduced and consolidated into two or three of them. Preferably only one. How can about ten or so different entities effectively monitor the same thing? They can't.

The complexity of today's financial markets is a delicate issue. Innovation is great and necessary to advance modern economies. Yet, the lesson now is that too much innovation can also come back and bite the innovators, the large lenders. The mortgage-backed securities sold on the secondary market that largely fueled the rise and fall of the subprime home loan were shaped so complex that even the investors buying them couldn't always understand what they were purchasing. And they are said to be pretty sophisticated. Therefore, this area ought to be looked at as well.

As the federal government is getting more involved, then hopefully it'll focus on the more relevant issues.


Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 8 commentsEsko Kiuru • March 16 2008 06:15PM


The economic panel under the Treasury Secretary is focusing on how to stop this problem from happening again.  There should be some effort place on how to solve the current problem.  We can worry about a future problem later.
Posted by Timothy P. McDonald (P. Timothy McDonald, Esq.) over 10 years ago
It is incredible the blame of the housing and mortgage markets' collapse can rest solely on the back of the mortgage broker in the eyes of some of some people.  It would be really great if we had that much influence.  But then again, if we did have that much influence, we would be the subject of so much scorn! 
Posted by Jim Filippi, Branch Manager (Bridge Haven Mortgage) over 10 years ago

maybe we could put some of the 12 billion a month we are spending in Iraq into the housing and mortgage markets...


Posted by Rick Kellow, FHA & Reverse Mortgage Expert (Cherry Creek Mortgage) over 10 years ago


Esko a national licensing system would be a major step in the right direction in my opinion. Several States around here have started to require that each Loan Office/Broker be licensed in their State. In MA it costs over $500 for a license and RI just under $300.  I hope that my State Connecticut institutes this as well.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 10 years ago


They key players, Washington and large financial institutions, sure do have their hands full right now.

Posted by Esko Kiuru over 10 years ago


To many the mortgage brokers are the easiest of them all to point the finger at, unfortunately.

Posted by Esko Kiuru over 10 years ago


That's a novel idea and many would vote for that.

Posted by Esko Kiuru over 10 years ago


The national licensing is good. Nevada has had it for its mortgage brokers for years and is renewable annually after a test.

Posted by Esko Kiuru over 10 years ago