Mortgage finance will rise again
The Mortgage Bankers Association is advocating the creation of a federal regulator for all non-bank mortgage originators. The entity would set a federal standard for lending, audit, examination, and enforcement across the US. At present, non-bank lenders are regulated at the state level. Some states are good aggressive regulators and in others regulation is almost non-existent.
"You’ll never eliminate fraud but you can certainly control and reduce it," says John Courson, president and chief executive of Washington, DC-based MBA. "We need a federal regulator that’s got some clout and standards to protect consumers and investors. The credibility of the product all starts with the origination."
The sub-prime crisis and its fallout certainly give credence to calls for a federal regulator for non-bank lenders. However, there is a risk that regulators might stifle the non-bank sector by making it difficult to do business.
"One concern is that the regulatory pendulum will swing too far in the opposite direction," say Michael Lea, of Cardiff Consulting in San Diego. "At minimum you’re going to have significantly higher disclosure requirements. There will likely be expectations that issuers are going to have to hold a significant subordinate position to align incentives.