Tuesday, October 2, 2007

The Practical Effect of Government Regulation vis a vis Mortgages

In response to the recent mortgage crisis, the Nevada state legislature sprang into action.

Unclear wording in a new law to block bogus real estate deals could make it
tougher for some qualified Nevadans to get home loans, and no hearings on rules
to resolve the problem have been held — even though the rules must be in place
by Oct. 1.

The problems with AB440 of the 2007 session comes at a bad time — with
Nevada ranked No. 1 in the nation for foreclosure rates on home loans and
experiencing a slowdown in home sales that mirrors a national pattern.

Mendy Elliott, head of the state Department of Business and Industry, said
Monday the hearings on the AB440 rules will be held, with a goal of adopting
regulations that ensure mortgage lending isn’t “shut down in the state.”

Elliott also said the state is working on other projects to ease the
mortgage lending crisis. That could include a requirement for credit counseling
sessions for prospective borrowers and the use of bond revenue to help some
borrowers.Assemblyman Marcus Conklin, D-Las Vegas, prime sponsor of AB440, said
the idea of his bill was to protect consumers, and nobody involved in the
legislation wanted to “slow up the process for qualified people” trying to buy

Conklin said that he plans to talk with Elliott about the regulation
process, adding that he thinks any confusion over the new law “will clear up
fairly easily.” If necessary, he said an emergency regulation could speed up the
process.Some major lenders recently expressed concerns about AB440. Ironically,
the banking industry came up with a late-session amendment that was designed to
give the measure flexibility but also inserted the fuzzy wording regarding
lending practices.

This article is thick with irony, for instance there is this quote, "with a goal of adopting regulations that ensure mortgage lending isn’t “shut down in the state". Why is this ironic. Well, wouldn't you know it, the first practical effect of this law is felt. Flagstar just sent me an internal memo saying that they are discontinuing most of their products in that state. Nothing to help a mortgage crisis like lenders picking off mortgages several at a time. (Please note there is no link for that would be illegal you will have to take my word for it)

The naysayers may say that this one bank and only a group of mortgages, and the naysayers would be wrong. Nebulus laws are not something that lenders want to deal with. If you don't believe me, just look at what happened vis a vis HB 4050, which sounds like pretty much the same law in my state, Illinois.

What was the practical effect of that law. Let's look at real estate transactions in the zip codes it applied in. This is one month after inception...

60620 experienced a 43% drop in sales
60621 experienced a 25% drop in sales
60623 experienced a 57% drop in sales
60628 experienced a 15% drop in sales
60629 experienced a 63% drop in sales
60632 experienced a 34% drop in sales
60636 experienced a 41% drop in sales
60638 experienced a 54% drop in sales
60643 experienced a 49% drop in sales
60652 experienced a 43% drop in sales

You got a hand it to politicians. Only they could look at one state, see a law failed miserably, and say, hey maybe that is something we should try here.
The banks usually work like a mob and we should all expect for lenders one by one in the next couple of weeks to remove all or most of their products from that state while this law is fleshed out. For the people of the state of Nevada, too bad so sad, as one of my friends loved to say, you will just have to deal with nearly no lenders lending in your state.
My favorite Reagan quote applies again,

"The nine most terrifying words in the English language are 'I'm from the government and I'm here to help'"

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