The truth is that, despite their best intentions, regulators can harm the very people they're trying to help. On the June 29 episode of my Lykken on Lending podcast, I spoke with legal expert Mitch Kider about the enormous pressure facing mortgage companies today. According to Mitch, the intense scrutiny organizations are facing are causing them to shy away from FHA
lending. And this scrutiny isn't over things like fraud and failure to disclose information – it’s merely over "bad" underwriting, judgment calls about who should and shouldn't get approvals.
Of course, mortgage organizations are being hurt by having fewer originations in the pipeline than they would have otherwise had. But the real victims of this undue scrutiny are the consumers who can afford to buy homes but aren't being permitted to do so. The wealthiest of consumers are relatively unaffected by the recent legislation--it's the middle class that's really suffering. And the inability for aspiring home owners to secure loans for their homes drives an even bigger wedge between the rich and poor. It's not judge the mortgage industry that's suffering – it’s middle-class America.
From the perspective of regulators and also to some extent from the perspective of the general public, the mortgage industry is often seen to be looking out for its own interest. Government officials and regulators are the good guys, crusading for the rights of the consumer. And industry representatives are often seen as the bad guys trying to make things as hard as possible on the consumer. But that, of course, isn't the complete story.