Is The Mortgage Industry Over-Regulated?

Why is it so hard to get approved for a mortgage these days? Because the  mortgage industry is being over-regulated -- at least, that's what mortgage  bankers say.

The Consumer Financial Protection Bureau is working on several new rules that go into effect in early 2013 that will shape the future of the mortgage industry, says David Stevens, president and CEO of the Mortgage Bankers Association.

"It’s time for Washington to stop thinking of our industry as a problem they  need to fix," he said, speaking to an audience of hundreds of bankers at the association's annual convention in Chicago.

Stevens says the MBA doesn't oppose regulations that protect consumers and  ensure a safe lending environment, but he claims there are too many rules in the works at the same time by different regulators, and they often conflict with each other.

Congress and nine regulators are working on housing policies to "fix the  problem," Steven says. "But the reality is regulators don't seem to talk to each other."

MBA wants a "traffic cop" for new rules.  The MBA says the government needs to create a role for a housing policy coordinator to act like "a traffic cop" for all these new mortgage rules to 
ensure they "complement one another rather than conflict."

Of all the regulations in the works, the most controversial one is the  qualified residential mortgage rule, which was proposed by the CFPB in 2010.  Originally, the rule suggested defining a qualified mortgage as a loan that would require borrowers to put 20 percent down when buying a home or have 25 percent equity when refinancing. Borrowers with a 60-day late payment on any debt in the last two years wouldn't qualify for mortgages under this rule.

Immediately after the rule was proposed, housing advocates and the mortgage industry pushed the panic button and voiced their concerns. The CFPB decided to take more public comment, and the rule has been pending since then.

The qualified-mortgage rule will be implemented in January, but I suspect it will be much different than the one originally proposed.

Safe Harbor for lenders.  For one, the mortgage industry is pushing to include a "safe harbor" in the rule, which would essentially protect loan originators from most borrowers' 
lawsuits.

I asked many bankers at the conference if they think the safe harbor provision will be added to the final rule. Most replied with a confident smile.

Some consumer advocates aren't pleased with the idea.

"The industry is saying we want to get back to doing no high-cost, toxic loans but we want to make sure the borrower has no right to pursue us in court," John Taylor, president of the National Community Reinvestment Coalition, said during a panel discussion at the conference. If you want to avoid lawsuits, "do things responsibly," he told the bankers.

What do you think? Is over-regulation hurting borrowers?