Government attempts to Regulate Lenders

Feb 6th, 2008 @ 11:40 AM by MortgageMentor

As I discussed yesterday, the economic stimulus bill that is being debated in the Senate includes some mortgage reform issues. But here is the trouble with adding more regulations to an already over-regulated market: Lenders already have a lot of incentive to assist the borrowers who have trouble meeting their payment schedules. After all, the lender will be hurt by a foreclosure — much more so, in fact, because of the weak housing market we have at the moment, where they might not be able to sell the homes they repossess at a good price. They might not even get it sold at all, and an empty home sitting on the market (a) loses value and (b) is a liability to its owner.

Lenders also know more about whether a borrower can handle a mortgage than the government could ever begin to understand. Could a borrower meet their obligation if he is allowed to re-negotiate the terms? If you just leave him in arrears for a few months? If you offer him a rate adjustment? If he goes into bankruptcy? These are questions lenders deal with every day; they know how borrowers act under pressure. The government, on the other hand, is new in the game. So it remains to be seen whether the bill, assuming it finally gets passed, will bolster the market–and the economy–the way that it is intended.