First off, let me say this isn't a blog entry about who's at fault for everything.  I think a lot of people took advantage of a lot of programs and succumbed to the pressure of providing the next big product in order to please clients/realtors/mortgage brokers/etc.  However, I think we're close to going too far with unneeded legislation that will further deteriorate consumer confidence in the real estate industry. 

Want examples?  Sure, read on.

FHA and Down Payment Assistance Programs.  These programs have been around for years without any issues with them.  They help people obtain loans with assistance from various sources that provide them the required 3% investment and if they can't find their own source, then non profit companies such as Nehemiah and Ameridream can step in and provide it.  Now, the FHA has determined that the default rate is too high and are pushing Congress to pass a law to prohibit these companies from continuing to make the American Dream a reality (which, last time I checked is actually FHA's reason for existence, but I digress). 

Well, if they're truly concerned about default rates, then why don't we try some intermediary steps instead of just eliminating the program altogether?  For instance, if people are using the Nehemiah program, then they aren't putting their own money down, so in theory, there should be no reason people shouldn't have two months reserves in the bank.  2nd, if borrowers are using Nehemiah, then they should be required to attend a HUD counseling session where they go over a budget, pratfalls of homeownership, etc.  Third, make FHA delinquency a permanent record on a credit report (and the further in the past a delinquency is the less of an impact it has on the credit report, so people will be able to get 2nd chances, but it will at least always stay with them and make them think twice about defaulting on the loan).  Fourth, since it's a higher risk, why not increase the funding fee by .25% payable not by the borrower (who typically doesn't know about the program until they talk to a mortgage broker or realtor) but instead by the broker or bank that offers it?  This will have a positive impact of increasing the reserves of the program but not overburdening the borrower with excessive, financed funding fees. 

Here's the key part, you have to let these changes fester into the numbers (oh by the way, it took me about 10 minutes to think of the 4 ideas above--I'm sure if our elected politicians realized that there were actually some good mortgage people out there like myself that we could help them come up with a lot of ways to tweak the program instead of eliminating another good option for homeownership, but again, I digress).  What I mean by that is you can't look at a 3 month sliver of time to make fundamental policy decisions.  There are simply too many outside variables that could compound themselves in such a short period.  Implement these rules, wait a year, and then look at the numbers to decide if these programs need to be further tweaked or restricted. 

These same ideas could be applied to other changes recently handed down by the government.  For instance, stated loans have basically been outlawed.  Well, I know a lot of people and have a lot of clients that are always going to be 'paper-poor'.  They own their business, make a significant amount of money and take full advantage of the numerous write offs that the IRS allows without thinking about the impact on their qualifications for a mortgage.  If you are going to change the laws to require full documentation, then it would be prudent to tweak Fannie/Freddie/FHA/VA et al's handling of business ownership income to include back into income various writeoffs that are not currently allowed.  For instance, one of the largest is mileage.  If I'm a w-2 employee, does the underwriter consider my commute and back out 58 cents per mile off my w-2 wages?  No.  But do they allow the business owner who commutes to various job sites to count that mileage as part of the gross income?  No!  So in essence, we're penalizing small business owners for doing their job correctly from being able to qualify for homeownership. 

 There are many more items I could discuss, but they all come down to the fact that politicians unfortunately want to be seen as the gallant white knight swooping in to save the day instead of allowing free markets (this is still a capitalistic society, yes?) to gradually implement changes as they see fit.  Ultimately, if we move incrementally with small changes and measure their impact gradually, we will be able to keep options open for qualified, well intentioned borrowers, mortgage professionals, and realtors.  And then the politicians will actually be able to brag that they helped resolve the 'credit crisis' (well, with a big assist from the people who actually know what we're doing).