THE TROUBLE WITH REGULATION.

The Regulators Don't Know What They're Doing. Regulators think they know the answer to all our problems but most of them have never worked a day in the industry they're regulating. A good example is their interference in the real estate industry. The mortgage industry has made great strides since I first entered in 1982 but you wouldn't know it from the attempts being made to roll back to those early years. When I first entered the industry, it took months to get a loan approved as we had to send out an average of six verification letters for each file and wait for the results to come back before we could begin assembling a package for the ultimate buyer of the loan. We had to write a detailed explanation for each derogatory item in the credit report. Once the file was sent to the ultimate purchaser, we were often told to go out and get more information. Some of these details were worth pursuing but most were a waste of time. One of the first things I learned was that common sense is out the window and I'll never forget the warning that, "There is a huge difference between a good loan and a saleable loan." It was our job to assemble a saleable loan package with quality out the window. The entire mortgage brokerage industry sprang up because large lenders found it less expensive to buy these loans from smaller companies than assemble the complex files themselves.

Borrowers Were Better Served When the Process Was Abbreviated. The trouble was that the process was abbreviated too much. This could be fixed relatively easily by correcting some of the excesses but government seldom does things the easy way. I could go through a multitude of examples but perhaps a description of the most nonsensical of these new regulations will let you know what I mean.

Huge Changes In The Appraiser Selection Process Lowers Quality. Apparently the government places much of the blame for recent problems on faulty appraisals. Further, they think that the appraisal problem lies with Realtors and mortgage lenders pressuring appraisers to over-value properties. Their solution is that appraisers are not selected by lenders any more. Instead they are assigned to each case by a central clearing house. The result is that the marketplace doesn't discriminate between those appraisers that provide a quality product within a reasonable time frame and those who don't. We can no longer talk to appraisers and point out obvious errors in reports. This problem and other new regulations have increased loan approval times to the point that you can no longer write a contract and expect a quick closing. If this really lowered the risk of foreclosure it might be worthwhile. Unfortunately, this isn't the case in my opinion.

A Mandate For More Regulation? Unfortunately, the government views the recent election as a mandate for more regulation. While I agree that corporate boards of directors have not done their job and corporations have not served shareholders and the general public well, I have no faith in the government to do anything to make it better. I am afraid the next 2-4 years will bring about some major changes in finance, energy, and health care that will be hard to undo once established. Hopefully, I am wrong.