Regulation and the problem of escalation

by 03 Mar 2015
By David Lykken
Special to MPA

As I think back on the previous broadcasts of my Lykken on Lending radio show, I realize that much of the conversation has centered around regulation in the industry. I know that this fact isn't all that surprising. But, I don't think I could have said the same thing if I had host the show ten years ago. We truly are living at a time in which our industry is dominated by the changes in regulation.

I go back and forth a lot on regulatory issues, trying to be an objective voice for both the industry and the regulators. I understand, from the point of view of regulators, that more disclosure and transparency is going to be better for the industry, the economy and society in general. But, of course, my heart lies with the industry and struggles it faces to adapt to what can sometimes be overbearing expectations. One thing I've noticed recently is a problem with escalation of home applications.

Typically, up to 30% of applications are initially denied by underwriting and must be pushed up the approval chain. But, in recent years, I've seen 50% become a new norm for many organizations. I've even seen some that are closer to 80%! When I see regulation being this tight, I can't help but wonder if something is wrong with the system--if legislation has gone too far.

I know it's always a balancing act. We need to make sure we are adhering to whatever regulations are passed, but we should surely be lobbying for a more reasonable playing field. Restricting the application process to this extent is going to stifle the industry--and stifle the economy in America.

So, we find ourselves in a tough position. We've got to adapt and, at the same time, fight back to keep the industry alive.

A regular contributor on CNBC and Fox Business News, David also hosts a successful weekly radio program called “Lykken On Lending” that is heard each Monday at noon (Central Standard Time) by thousands of mortgage professionals. Recently, he started producing a 1 minute video called “Today’s Mortgage Minute” that appears on hundreds of television, radio and newspaper websites daily across the United States.


  • by Steven B. Harkness | 3/3/2015 4:30:51 PM

    I am being told by borrowers at closing they feel so "beat up" by the process that they will never do it again. This despite the fact I go to great lengths to explain up front what will happen and when. In 23 years of helping people navigate the labyrinth of ever changing rules and guidelines....I have always been a customer to receiving accolades at closing. Now it is me making apologies at Escrow (yes I attend my signings) for all they have had to endure and they are angry. To make matters worse is their is always the last minute compliance audit that always asks for a clearer copy of one last document before funding. I seriously believe the thing holding many potential homeowners back is they do not want to be put through the process.

  • by Marti Greeley | 3/4/2015 12:01:56 PM

    The rules and regulations should have also included something making the consumers responsible... not all foreclosures were because of lender misconduct. At some point we need to state the fact the Borrowers signed NUMEROUS pages stating the terms of their mortgages and as a Mortgage Lender I assure you I have never held a gun to anyone's head to make them do a mortgage! We have been blamed for everything having to do with the mortgage collapse and we are probably the least complicit...the Investors and Borrowers are just as much responsible...

  • by Wm Matz | 3/4/2015 1:22:44 PM

    Reform has been largely misdirected because it assumed a "blame the product" approach and tries to dumb the process down. There are NO bad products, but there were [and are] many bad matches between borrowers and products. Even criticism of neg ams ignores that the ultimate neg am is the FHA HECM. There are borrowers [e.g. seasonal] who need "exotic" mortgages for proper financial planning but now don't have that option.

    Until we see mortgages as a part of the financial planning process -not a product - we will continue to have bad matches between borrowers and mortgages. But effectively implementing such a revision would require a massive upgrade in eduction and training for originators, especially those at banks, who currently have none.


Is TILA-RESPA a good or bad thing long term?