Defensive lending: How overregulation is hurting our industry
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.