Q: Wall Street and mortgage lenders are facing more regulation, but as an attorney representing creditors, mortgage brokers, lenders and others in the industry, you argue that it will hurt more than help. Why?
A: If we want to borrow money, get a mortgage, buy a car, get a credit card, it is going to be more difficult. More regulation is not the answer. It will only tighten things up when credit is already tight.
It comes down to the basic question of what we expect from government. George Washington said, “Government is not reason, it is not eloquence, it is force.” Do we want government force to control our financial markets? What is the price we pay for that perceived sense of security?
So far, I would say government has not been able to protect us as individuals and provide us with security against the slings and arrows of outrageous fortune. Stuff happens, whether it is the Depression of the 1930s or the high- tech bust. We must rely on government to set the rules of fair behavior, and we must rely on government to punish those who violate those rules. We have to let the system function without government interference.
You may say the government can’t let this happen. All the government can do is alter who pays for the mess.
Q: But won’t tighter regulation restore confidence in the market?
A: There is a lot already in place, which, if properly enforced and if compliance were required, would address a lot of these issues. For the federal government to pretend in public that it had nothing to do with this. . . . The federal government has trillions of dollars out there in residential mortgages.
An honest evaluation of the situation would conclude a lot of this wouldn’t have ever happened if things were more carefully controlled under existing regulations.
Q: But you agree that some reforms are needed?
A: Three or four simple things, if put in place in a thoughtful way, would protect us on the mortgage side. The first thing is to have uniform licensing standards for anyone who works with consumers in the residential mortgage business. We need a single, national registry for all mortgage originators — loan officers, brokers, bank employees. No exceptions. If you are involved in the mortgage business, you have to have clean hands, you have to care about the consumer and you have to care about originating good loans. People in this industry need to have uniform professional education, pass an exam and have a criminal background check. If there is even a tiny little loophole, that is where all the money is going to.
Second, the documentation and the lending process have to be less complex. People have to understand what they are doing. Third, you have to require that lenders perform proper due diligence and verify a borrower’s credit and collateral. There has to be a way to put the lender on the hook if they don’t perform due diligence.
Q: How would you rate Colorado’s regulatory efforts?
A: I would give Colorado’s efforts a C-minus. I don’t think there has been much thoughtful, nonpartisan analysis of what is needed in our state. A lot of what is going on in the world today is beyond the power of the state of Colorado to regulate or to even influence.
Q: What went wrong, in your view, with the mortgage markets?
A: We had a fundamental failure in the basic assumptions about who loans money and why, and who borrows and why. You loan money to make money and are careful to choose a borrower who won’t default. You borrow money to get something you really want because you think, in the long run, you can pay it off. Those assumptions were gone.
We shouldn’t blame people for borrowing money. But you can certainly blame people for borrowing money for motives that were just goofy, based on assumptions that houses would only go up in prices.
Edited for length and clarity by Aldo Svaldi.
