Finally, Regulation that Makes Sense

I've never liked the argument between more regulation and less regulation. Neither of those is the answer. What we need is better regulation that actually addresses the problem without bogging down the industry. I've written plenty about new regulations I don't like, but now I've found one that really seems to make sense.

The Federal Housing Finance Agency, which regulates Fannie and Freddie, announced the new rules last week. Starting in January of 2010 individual mortgages will include loan-level identifiers on the lender, loan officer and appraiser who were involved. This means that we will be able to track the performance of individual loan officers and appraisers. Loan officers and appraisers with high default rates or incidents of fraud will be easily identified.

This computerized information will make it possible to finally weed out the bad actors in the industry. All the education requirements and additional forms in the world won't improve the industry or protect consumers nearly as much as simply getting rid of those individuals. People who want to commit fraud will find a way around most regulations, but if they're doing bad loans this system will catch them.

Of course, the real test is going to be what is done with the information. We can't simply compile information and do nothing with it. It is critical that the information gathering be accompanied by strong enforcement actions. Lenders and appraisers are licensed professionals, and the bad ones need to have those licenses revoked.

This new regulation won't single-handedly fix the mortgage industry, but at least it will give us the tools to go after the root of the problem.