The latest rant as reported by the Associated Press in an article found at Charlotte.com is back to Mortgage Reform. There are a few comments by lawmakers that I find particluarly offensive in this article.



First

We have Senate Banking Committee Chairman Christopher Dodd. To quote the article, ?Dodd criticized incentives that lead mortgage brokers to make loans to people they know may be unable to repay them. Many of these nontraditional mortgages are higher-interest loans to people with poor credit histories.?

Let's get one thing straight ? mortgage brokers do not create loan products, lenders do. Mortgage brokers do not decide who qualifies for what loan, lenders make lending decisions. Mortgage brokers are the sales force for lenders. They are compensated for finding the consumer and bringing them to the lender.

Having said that, do some mortgage brokers make excessive fees and compensation? Of course. They try to make as much as they can, just like any other salesman. There is a very, very simple solution for this problem. One piece of legislation would permanently solve all of the ?gouging? issues. Quite simply make it a requirement for mortgage brokers to reveal via contract their TOTAL compensation. This will not be effective however, UNLESS this law is made to also apply to the retail arm of lenders. Further, the law must specify that the retail arm of lenders can not pass along artificailly higher rates. A simple rate lock form could be used to state that the rate being given is + or - ?x?% of the national average.

Additional safe guards would have to be put in place to prevent lenders from engaging in deceptive tactics ? essentially hiding money between the wholesale and retail level. Did you notice that the solution was real quick and easy for mortgage brokers, but not so easy for lenders? Hmmmm?.. and yet Dodd clearly placed blame with brokers. He doesn't receive significant campaign monies from Lenders, does he? The article says ?Dodd has said that he will not impose a blanket ban on accepting political contributions from industries that the panel oversees.?

Second

The second thing that I take offense at is the Rev. Jesse Jackson, Richard Shelby of Alabama and the chairman of the companion House committee, Massachusetts Democrat Barney Frank who are all posturing for the need for increased regulation.

In particluar the article quotes Jess Jackson as saying (predictably) ?Congress must pass ?strong laws to protect the vulnerable?". HOLY SMOKES people, short of straight to the point legislation such as what I proposed above, there is no amount of additional disclosures, educational material, pamphlets, brochures that will change the consumers viewpoint. Further, is the government now going to tell people what loans are good and which ones are bad? By the way, some of the ?bad? loans are actually fantastic loans IF they are used judiciously.

The problem we have is the Consumer doesn't want the 30 year fixed rate. What many want is to consolidate their debt with an extrememly low payment ? rack up their credit card debt again, refinance and consolidate with an even lower resulting payment. Then scream, yell, rant and rave when it all catches up with them. The VAST majority of borrowers know what type of loan they are getting and what the negatives are. What really steams me is that these public figures are attempting to say that it's not the consumers fault ? they've been duped. Therefore, what they are really saying is the consumer is too stupid to know what's good for them. Government has no place in judging the spending habits of it's citizens. In fact they seemed happy enough when these spending habits contributed to the recovery of our economy just a few years back.

Lenders and Investors should be made to ?pay up? for all loans gone bad. In other words, if they are spanked for being too aggressive in granting credit they will soon realize that they should back off or tighten up lending standards. This is the way the Free Enterprise system works. So, all regualtors need do is make sure that lenders are ?spanked? hard ? with no bail outs available.

Ah, but this is politics. For some reason lawmakers just can't reason with Common Sense. Well, at least not while an election is at stake.