Defensive lending: How overregulation is hurting our industry

by MPA20 May 2015
By David Lykken
Special to MPA

On the May 11th episode of the Lykken on Lending Internet radio broadcast I host, I got the opportunity to discuss regulatory issues with David Stevens of the MBA. During our discussion, David brought up an interesting term to describe how the industry has become post-regulation. Rather than proactively pursuing home owners, many organizations have shrunken back in fear. Many in the industry have become "defensive lenders."

Rather than helping people get mortgages, the industry has become more about keeping people from getting mortgages. Due to the amount of regulation that has been placed on the industry, most organizations are more worried about compliance than anything. While I believe that much of the focus on compliance is a good thing and that the industry certainly needed a wake-up call, I've begun to wonder if the pendulum has swung too far in the other direction.

Making lenders afraid to lend isn't going to help the industry – and it isn't going to help the economy. You can't really go anywhere when you're backed into a corner. And that's how many organizations in the industry feel right now – that they’re backed into a corner fighting for survival. There's no time for thinking about progress when you're fighting for what little you have left.

Much of the regulation that has occurred recently was necessary. But if regulators don't find a way to work with organizations change this mentality in the industry, we aren't going to get anywhere. The economy needs the mortgage industry to succeed. And we need to feel like we have the freedom to do so. We need to feel like we can gain new ground again – rather than simply defending the ground we have left.


  • by NoSpin JustFacts | 5/20/2015 7:33:34 AM

    Most certainly the mortgage industry has been redirected by President Obama's administration and the 2010 Dodd-Frank Congress to stop serving consumers and to begin serving the Federal Government to the detriment of responsible consumers.

    The majority of regulations created by this group of politicians and carried out by their street gang regulators are anti-consumer. In the past year I have spoken 3 times with CFPB attorneys of current and Aug 1, 2015 regulations identifying the negative and come Aug 1st, deceptive to consumer regulations. Each time their initial response was no that is not a correct interpretation of the regulation. Each time, I received a call back from the attorneys to be told the my interpretation was correct. I was informed by the 1st 2 attorneys that the CFPB was not going to be changing their rules to be consumer friendly. The 3rd attorney indicated that it is too bad for the consumer; but, the CFPB was too large and not agile enough to make the corrections.

    We did not get into the housing crisis the result of the mortgage industry being under-regulated - it worked very well for 70 years. The crisis was the result of politicians forcing the industry to use mortgages for the well qualified and self-employed (Stated Income High Quality Credit Large Down Payment) for poorly qualified W2 and/or Government Assistance Low Quality Credit Low/No Down Payment borrowers. Just so the Barney Frank styled politicians could make headlines on how they are increasing home ownership for the under-served.

  • by Samuel | 5/20/2015 8:25:46 AM

    It's disgusting to me that Obama and ilk have gotten away with the narrative that mortgage lenders are to blame and regulators did not regulate. Bush I, Clinton and Bush II pushed home ownership as a way to get people to have equity, build wealth and have a stake in their community. They mandated that banks get CRA credits for doing low to mod mortgages in the mid 90's. They demanded that "alt credit" consisting of tier I, II and III be required for minority applicants who "don't use credit or have access to credit". That then moved us to push mortgages to meet the demands of regulators including Barnie Frank advocating for Fannie/Freddie giving more access to borrowers, Bill Clinton, Bush and Andrew Cuomo when he was HUD Secretary

    But politicians have small memories and dodge accountability. They needed a whipping boy. They destroyed the mortgage business and over regulated it. They, with the Elizabeth Warren's, empowered government employees to act as prosecutor, judge and jury against lenders. There is no fair court hearing, hence the quick settlements by large and small lenders. Only Quicken if fighting back.

    Were there bad lenders? Yes. Were there bad employees, absolutely. Were their lying borrowers? Yes. Did the market froth because of the government push? Yep. Did that create an environment for greedy people to jump in and make a quick buck. You betcha. Were mortgage bankers, brokers and lenders to blame? No. The US Government public policy is to blame for this. And, today, the over regulation makes it impossible to lend because no one trusts the borrower and we certainly don't want the regulators seeing even the slightest issue

  • by Just a Guy | 5/20/2015 10:59:08 AM

    "No SPIN", both your comments on today's articles were right on!!! Lets not focus on the little battle of regulations and focus on the government's big picture of creating the CFPB. Nobody really brings up the topic of this unnecessary entity created. To justify the CFPB's introduction to this industry new regulations will be implemented otherwise what are they there for and how would the government be able to charge me these new exorbitant YEARLY fees as an originator. This whole movement is another government tax specifically targeting "higher" wage earning mortgage originators. I'm really torn on this subject because I think licensing is a good thing but this seems very excessive.
    Example: As a R.E. Broker I pay once every five years to my state board to carry a license but as an L.O. I pay almost the same amount of money yearly???


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