Did you see the post yesterday on Hot Topic?
Unintended consequences of regulating mortgage brokers
Unintended consequences seem to be one of the themes I keep coming back to.
Government, doing things that are designed to sound good for the news crews and the uninitiated, doesn't often accomplish the desired effect. The foreclosure crisis "solutions" are another example. Back to the subject at hand...
The regulation in question is surety bonds or net worth requirements, which are intended to keep mortgage brokers honest by assuring that they have some skin in the game—real assets that can be taken from them if they screw up. But in a National Bureau of Economic Research working paper, Morris Kleiner of the University of Minnesota and Richard Todd of the Federal Reserve Bank say this:
In particular, we find that tighter bonding/net worth requirements are associated with fewer brokers, fewer subprime mortgages, higher foreclosure rates, and a greater percentage of high-interest-rate mortgages. Although we do not provide a full causal interpretation of these results, we take seriously the possibility that restrictive bonding requirements for mortgage brokers have unintended negative consequences for many consumers.
The post poops on other aspects of the bill as well...
The bottom line is that another law, another program and some more regulations aren't always the best ways to tackle problems. Sometimes, stepping back and taking stock is a better plan. Doing nothing can actually be a valid plan.
Perhaps some politicians ought to figure that out. If someone really wanted to run on a plan of "change", perhaps a bigger change would be to stop making another agency every time somebody passes gas...
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