Housing vs. new regulations -- not a pretty picture

Sometimes the only immediate response to the news is, "AARRGGGHHHHHH!" Here's an interesting pair of articles published by RISMedia:


From that piece: “An overwhelming 75 percent of the people who were polled said that owning a home is worth the risk of the fluctuations in the market, and 95 percent of the home owners said they are happy with their decision to own a home,” [NAHB Chairman Bob] Nielsen says. Against that backdrop, consider:


Those surveyed for the first article consider homeownership and a retirement savings account to be their best investments, and 80% would recommend to a close friend or family member just starting out to buy a home. So why all the rules and regulation that make that more and more difficult?

"Well, we can't let that happen again," goes the usual argument, referring to the mortgage meltdown and housing crash. But too much of the legislation and rule-making over the past couple of years are a vast overreaction, mostly by people who don't know the mortgage or real estate businesses.

• Did mortgage loans to poorly qualified borrowers with little or no skin in the game lead to the crash? Absolutely, but analysts conclude that there is no statistical difference in the risk of default for a 3.5%-down FHA borrower and a 20%-down conventional borrower, so why push the industry toward high down payment loans?
• Did Fannie and Freddie get out of control? Certainly, but there is a valuable place for a secondary marketplace for mortgage loans. If the risk profile of a basket of loans is accurately disclosed, the private market will take up that function.
• Did "securitization" of mortgage instruments lead to a "Wild West" mentality among subprime lenders? Sure, at least for some of the larger players. It was an out of control secondary market that allowed those loan originators to decouple risk from reward. Why wouldn't they keep making risky loans when all the downside was somebody else's?

I am not advocating a political position here, and I acknowledge that some new regulation probably was needed. But what's going on now is horribly misguided, and it is holding back housing -- the sector of the economy that is key to the rest of the recovery, and the most predictable source of wealth accumulation for most Americans.

Go ahead. Scream. You'll feel better!