The best part of the housing bill signed by President Bush on July 30 was the section that establishes new regulations for mortgage loan originators. The regulations require all mortgage originators to be screened, educated, tested and licensed. The law also created a national registry of loan originators. And it won't cost the taxpayers a penny, a good thing considering the size of the federal deficit.
Of course, many will tout the $7,500 tax credit for first-time homebuyers. Others will point to the additional standard deduction for property taxes for taxpayers who don't itemize.
Some will say it is the $4 billion allocated to states and cities to buy foreclosed homes, refurbish them and then sell them.
The law also allows the Federal Housing Administration to guarantee refinanced mortgages on which the lender writes down the loan amount to 85% of the borrower's loan principle. An estimated 400,000 homeowners will be assisted by this program.
Another key provision of the law establishes a temporary line of credit and authorizes the purchase of stock in
Fannie Mae of Washington and
Freddie Mac of McLean, Va., in order to stabilize them, while creating an independent regulator to oversee them.
But the provisions that got the most attention - the tax credit, the $4 billion for local governments, the $7,500 for home buyers, etc. - were aimed at repairing the damage from the bursting of the real estate bubble.
The education and registration of mortgage brokers, on the other hand, are designed to prevent a similar bubble in the future.
Unscrupulous mortgage brokers weren't the most significant cause of the bubble, nor was the foreclosure crisis that is sweeping through many communities. The easy money policies of the
Federal Reserve were far more significant.
And too many homebuyers, swept up in the excitement about the apparently inexorable rise of housing prices, bought more home than they could afford in order to try and reap some of the gains.
While some homebuyers were misled by some real estate agents and mortgage brokers, many buyers lied about their income to the mortgage brokers.
They bet that the value of their homes would rise enough for them to refinance before the mortgage burden became more than they could bear. They lost the bet.
But there is no doubt that some mortgage brokers pushed homebuyers into unsuitable mortgages — mortgages that were too large for the buyers' incomes, adjustable-rate mortgages when fixed-rate would have been better, interest-only mortgages. These mortgages have contributed to the crisis and to the economic distress of many homebuyers.
To the extent that these unscrupulous brokers can be weeded out through the licensing provisions, we will have a healthier mortgage market. Likewise, a better educated, more professional mortgage broker corps will improve the health of the real estate market for the future.
Unfortunately, Congress couldn't address another key part of the problem: the consumer side. It can't mandate the fiscal education of millions of homebuyers and would-be homebuyers.
While those who have suffered in the crisis and lost their homes to foreclosure no doubt have learned a painful lesson, it isn't at all certain that the next generation of homebuyers will have absorbed that lesson.
It will be up to the financial services industry, bankers, brokers, planners, investment advisers, etc. to try to educate the next generation of homebuyers — the generation just now entering the workforce and starting families — to live within their means and to save for the future.
The industry should start a campaign now to teach this generation about the dangers of debt and the benefits of thrift.
