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Is ‘certainty’ the missing ingredient in mortgage reform?

By: 29 January 2012 No Comment

Since the subprime lending market collapsed around 2007, mortgage reform has been a popular topic in the federal government.

When it comes down to it, the real estate industry in general has become an issue of much discussion in Washington, D.C. The high number of foreclosures has been a concern and the same goes for falling home prices. Furthermore, there has been an emphasis on risk – the notion that lenders ought to write mortgages for people who are likely to live up to the obligations under the loans.

It is a very good thing to make sure that borrowers don’t get in over their heads when taking out mortgages – that lenders are underwriting loans for people who will probably pay them back. Also, who will argue against the notion that a stable housing market featuring prices that don’t fluctuate wildly from year to year is good for the economy?

It appears a good number of private groups and governmental entities see the value of a stable housing market, but what has not been clear is how to achieve that goal. David H. Stevens, President and CEO of the Mortgage Bankers Association, put his finger on problems surrounding housing market reform on Jan. 18 in his speech to the Exchequer Club of Washington, D.C. He pointed out that there is little in the way of certainty when it comes to reform.

“One of the main reasons for our economy’s continued struggles is our present state of constant uncertainty,” he said. “This uncertainty has impacted consumers and industries alike, creating difficulties for both.

“In recent years, policymakers and legislators have focused on proposing a plethora of new rules rather than on actions that would create confidence. It is not that rules are a problem or contrary to creating confidence; it is that simply racking up hundreds of rules – rules that are often vague or confusing without clear logic, application, or protection for consumers – is contrary to creating confidence. What individual, let alone what industry, can figure out how to proceed if they are overwhelmed by and do not understand the hundreds of rules?”

Stevens argues the housing market has become a political football in that sometimes contradictory rules and reforms have been put in place with little regard to their consequences. For example, consider residential mortgage servicing standards – the regulations regarding the relationship between a borrower and the entity collecting payments on a mortgage. Currently, states and the federal government are all considering their own rules rather than coming up with one, uniform set of standards.

Stevens argues that going for common sets of rules will lead to certainty in the housing industry and that is good for everyone involved. Certainty makes consumers and investors more confident and helps the people responsible for issuing mortgages understand what they are obliged to do.

How can that certainty be achieved? Stevens said such certainty can be achieved through a strong U.S. Consumer Financial Protection Bureau (CFPB) – a federal agency that set up shop in July. That group can either oversee uniform rules regarding mortgage lending or keep going with the patchwork reforms that have been the rule over the past few years. Stevens, of course, argues that the CFPB should pursue uniform sets of rules of regulations.

“We must create straightforward rules that apply equally and nationally,” he said. “This would provide crystal clear guidance, creating certainty in a time of uncertainty.”

Home Sweet Home is written by Ethan C. Nobles and is sent weekly to publications throughout the Natural State on behalf of the Mortgage Bankers Association of Arkansas.

About: Ethan C. Nobles:
Benton resident. Rogue journalist. Recovering attorney. Email =

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