If there was ever a time that politics would influence the real estate markets, the time is now. The nation avoided having the real estate bubble burst, but now we face a credit crisis that will put a squeeze on the economy.
The recent meltdown in the sub-prime mortgage market has already moved lenders to tighten their credit and lending standards — even for the most credit-worthy of borrowers.
While these measures have for the most part been voluntary, regulators are carefully surveying the industry and its players. Given the increased scrutiny and shifts in the regulatory environment, we can look for the industry to tighten lending standards further.
What is surprising is that the industry faces varying regulation from state to state. Given that many loans are backed by government agencies like Freddie Mac or Fannie Mae, it is surprising that states are not subject to federal standards or guidelines — in all areas of lending.
On the most basic level, mortgage originators or loan officers do not have to be licensed in every state. Yes, that means there often are no barriers to entry into this profession or ethical guidelines that govern the profession. This void has proven to have catastrophic consequences for many homeowners across the country. Improvements in this area (licensing) would be an easy first step to better monitor the industry and protect consumers’ interests.
This amounts to low-hanging fruit on the policy front for Congress — with both sides of the aisle leading the charge. However, it won’t be surprising to see Democrats spin this as a Republican-born crisis. The problem is the shifts in the banking industry that created liberal credit standards, which were put in motion long before our president stepped foot in the White House.