By Steve Hops
During the past 10 years, mortgage bankers have been innovative, creative and competitive in the development of new products, many of which allowed thousands of families to become homeowners where they otherwise would have never qualified for traditional loans.
Even with the current wave of foreclosures, homeownership has declined just three-tenths of 1% since it peaked in 2004.
The same innovation and creativity that allowed families to achieve homeownership are now under attack.
New regulations have been proposed at the state and federal level to restrict lending in the misguided hope that they can produce positive results for consumers.
Unintended Consequences
Industry regulation is clearly needed to address issues of fraud and broker oversight. But the unintended consequences of other proposals would be disastrous.
In California alone, legislators are considering more than 20 mortgage-related bills that were introduced in reaction to the recent wave of foreclosures.
Overly restrictive legislation that attempts to usurp healthy market forces does nothing for homeowners currently in trouble and looks to address a problem that may have already been solved.
Natural market conditions have dictated a sharp decline in all lending, particularly for more risky subprime loans, due to the uncertainty for repayment and lack of investor appetite.
Many prudent consumers who sat out the housing boom and are now ready to buy a home are finding that even traditional loans are hard to obtain due to the lack of liquidity in the market.
Instead, lawmakers should encourage investment in the state’s mortgage market by avoiding policy efforts that would arbitrarily or retroactively change loan contracts, or create “California-only” rules that serve to drive out competition and drive up prices for homebuyers.
Convincing Investors
The willingness of investors to provide money for California’s mortgage market will be based on the return of stability, certainty and uniformity.
If investors are not convinced that California real estate is a safe place to invest, we will have succeeded only in prolonging the current crisis by discouraging the flow of capital.
Proposals to impose liability on investors who buy subprime or nontraditional loans will send a signal to investors that these products,and the people who use them,are not good investments.
Unfortunately, this would drive up the cost of obtaining a mortgage for the people who can least afford it and lock lower income borrowers and those without traditional credit histories out of the market.
Solving California’s mortgage crisis will require careful deliberations, cooperation between mortgage lenders and policymakers and a proper understanding of the underlying economic issues that confront the state today.
Hops is residential president of the Sacramento-based California Mortgage Bankers Association.
