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.