Regulator Rabble-Rousers

by 06 Sep 2012

I’m not against more regulation. I’m against more piling on.

(TheNicheReport) -- Suddenly, regulators that should have been paying attention know eighteen new ways to stop lenders from bilking hapless consumers. We all knew what should have been done. Regulators just couldn’t be awakened to listen. A mortgage regulator on the bridge of the Titanic would have sent a note to the Captain that there was a possibility of a collision, but it was being studied.

Because this crash involved government employees who can only be fired if they murder their boss in front of twelve witnesses, Congress held hearings designed to protect any bureaucrat who caused the disaster and made everyone else look bad. There is no penalty for piling on, so even the Department of Agriculture showed up.    

Wall Street absolved itself claiming no one could have foreseen a market collapse. Congress claimed it wanted to make the American Dream possible for everyone. Fannie and Freddie claimed they had to follow the market or lose dominance.  HUD said it warned the industry but sadly the memos were only circulated internally.

The hearings determined that it wasn’t the Beltway’s fault. The fault was that there were thirteen different government agencies with authority over mortgage lending. What was needed was a fourteenth with more authority. Spreading blame meant that each person was only a teeny bit guilty rather than a loyal government employee. “That’s why Congress has so many members,” one Senator explained. For mortgage lenders this is the “Wait-till-your-father-gets-home” minute. We know what’s coming.  Legislative bubble machines will drain all the water out of mortgage pools and lift another few thousand from our net profit.

Loan originators have been assured that industry input will be solicited in the Federal Register, a pulp magazine with no pictures. If you want to comment on proposed rules you’ll find an address so long it won’t fit on the envelope.  When responding I often found the title: “Deputy Assistant Secretary to the Deputy Assistant Secretary.” DA’s read all comments and compile an executive summary which goes something like this: In mortgage finance, anyone working in a carpeted office is good; anyone working with borrowers whose office floor has a hard surface is bad.   

When I talk to people in Washington about over-regulation they often refer to “the big picture.” We aren’t in the big picture. We are in the small picture. If you were shown the big picture you’d see a big check from Kreplach Mortgage Corporation with Cash and the Right Point-of-View.  I checked with the Supreme Court, which recently ruled that corporations are persons. They told me they are thinking about also making mortgage lenders persons. 

Today there are two kinds of mortgage regulators: Those who think their job is to see to it that the rest of us don’t enjoy our work, and those who think all mortgage loan originators have tats and a parole officer.  Both have an army of auditors – people who had a wretched birth, a vile and degrading childhood and a failed career in accounting. Some will be visiting you soon. When they arrive, rent some folding tables and wobbly metal chairs and put them in an unheated hallway. Remove a few bulbs from the hall lights; pull the plug out of the refrigerator in the break room and stick an Out of Order sign on the nearest restroom. Never try to be funny. The only time auditors smile is when they find a mistake.

We have been assured that sufficient time will be allowed for us to adjust to the new regulatory environment. Your interpretation of new rules and guidelines may differ from your regulator’s, in which case you lose. Regulators get their interpretations from Mt. Sinai on clay tablets. They’ve promised a fresh approach to consumer warnings and have new ideas, like mandatory government disclosure forms that make everything clear. Several hundred lawyers will reduce an explanation of annual percentage rate to just fourteen words that anyone can understand. Finally consumers will eagerly read everything at closings and pat us on the back. I can’t wait.

I have just one reminder for those writing the new rules: A disclosure is a piece of paper that tells you what the next piece of paper is all about. It’s a lot easier to just start with that second piece of paper.


Gordon Schlicke is a mortgage trainer in Seattle. He can be reached at or (206) 972-3091. 


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