The foreclosure crisis in America has impacted everyone- even those who don’t own homes. Our nation is currently struggling with high unemployment, a relatively illiquid credit market, and a deficit that raises serious concerns about the value of the US Dollar in the not too distant future. With interest rates already at historic lows and the government pursuing an unprecedented policy of quantitative monetary easing, options for government intervention are limited. While there is no simple solution to this problem, I think that we must look at the reasons the housing market went into crisis, and based on that develop a regulatory system that will allow us to avoid another situation like this in the future. If Americans believe guidelines are in place to prevent another crisis, confidence will return to the housing market. Further, in doing so, we must not ignore possible consequences of a failure to enact measures that are needed to shore up the housing market in the near-term.
On the simplest level, I believe in Smithsonian Economics. However, the United States is anything but a ‘simple’ economy. We run the largest, most complex economy in the world. The near collapse of the US financial system showed the global implications of a meltdown in the US financial sector. The Federal Government stepped in and bail outs were everywhere. This runs directly counter to John Smith’s philosophy. Due to the size and complexity of the US economy, we need to have regulation in place that provides a framework for lending in the housing market. I believe that framework must be two pronged; it must apply to both lenders and borrowers. First, I will discuss how to regulate lenders from the ground up.
Loan Officers: In most states the requirement to be a loan officer was a pulse and a tie (tie optional). These L.O.s were the people who directly counseled buyers on financing the biggest investment of their lives. Yet, they were required to have no education in business or finance. At the very least a Bachelor’s Degree from an accredited university in a relevant field should be required. In addition, all L.O.s should be required to pass a federal test, similar to the one the IRS requires for Enrolled Agents (EAs). EAs are highly respected tax professionals. If strict requirements are put in place to become a loan officer, L.O.s will enjoy the same amount of professional respect.
Brokers: In most states, the requirement to be a broker was the same as that to be a loan officer, except the tie was mandatory. Where I live in Georgia, the Department of Banking and Finance had accepted an application to be a broker from an individual whose previous job was working the counter at Arby’s. The Georgia DBF required only that individuals take a one week course in Federal and State regulations, and then s/he could apply for a Broker’s License. Brokers not only deal directly with perspective buyers; they hire other loan officers to do so. For a...