Time for a National Lending Standard
by Charlie Elliott, Jr. MAI, SRA

Most of us would agree that civilized societies, by virtue of human nature, must subscribe as a group to social, professional, ethical and legal norms. Even with these influences within our society, the system sometimes breaks down and society as a whole suffers from the actions of a few unscrupulous individuals who have little interest or empathy for their fellow man. We also have, within the umbrella of the home mortgage industry, our share of over-the-top and beyond-the-pale conduct by a few individuals who serve to tarnish the image of our industry. Is this because we do not have enough rules and regulations or is it because of the type of rules and regulations we have?

Now, I don’t know about you, but, from my vantage point, there certainly does not seem to be a shortage of the number of regulations within our country and profession.

We in the mortgage industry have been subjected to most every kind of scrutiny known to mankind within the past few years. While most of it is governmental in the form of laws or regulations, it does not stop there. We, as players within our arena, find ourselves monitored, pressured, regulated and influenced from the press, as well as from civic, religious, political, social and educational institutions and organizations. At times, the pressures of our environment seem to become so onerous that we must question how much more of this regulatory overhead we, as people and professionals, can endure.

There seems to be a tendency to gravitate in the direction of adding more and more laws and regulations in an effort to combat the problems caused by a very few. All too often the additional controls affect the culprits very little and the compliance burden is placed upon those demonstrating and practicing good faith. An example here would be a 20-mile-per-hour speed zone created on a busy street where numerous accidents have occurred, only to find out that these accidents were caused by people who were not obeying the previous 45-mile-per-hour speed limit. This penalizes many in the form of an artificially low speed limit, imposed on those willing to abide by the speed limit while those whom ignored the 45 mile per hour speed limit are even more abusive in the new speed zone than they were in the old zone. This is a classic example of making our laws more restrictive while not enforcing the lesser restrictive laws.

It is inevitable that, as part of the price of living in such a dynamic and prosperous nation, we must expect a degree of bureaucracy not experienced by those living in tribes in the rain forest making their living as gatherers, hunters and fisherman. Having said that, I, for one, am seeking a middle ground of which I do not see our society gravitating toward.

A prime example is that of the tremendous number of state banking laws that are not consistent or congruent with those of other states and/or the federal government. This may make sense if these states were in a vacuum and if the mortgage and finance businesses were not businesses of interstate commerce. There was, perhaps, a time when banking was local, but that ended many years ago. Tools and events such as the telephone, fax, Internet, bank mergers and the savings-and-loan debacle of the ‘80s, coupled with the most mobile society ever known to mankind, have made banking in our country a national industry crossing many state boundaries.

It does make sense for all of us to be concerned about such issues as predatory lending, bank fraud, usury and consumer privacy, but why is it necessary for each of our 50 states, and the federal government to boot, all to have different and separate laws and regulations on these issues. This is especially the case when we consider the fact that virtually all home loans are products of interstate commerce. From my prospective as an appraisal professional, virtually every loan transaction in which our company is involved touches not just a couple but a number of states and geographic areas. An example would be a borrower living and owing a home in New Jersey and working and paying state and city taxes in New York. He has a friend in Florida who is a mortgage broker who uses an appraisal management company headquarters in Alabama. The funding bank is in California, the PMI Company is out of Chicago and, well, it goes on and on. You probably could think of more players in other places than I have, but you get my drift.

What should be done about this mess? This is my proposal.

There should be one set of national standards for loan officers and one for appraisers. Each state should certify individuals from each profession through their boards as most do now, using common federal rules and regulations. The state would enforce rules but would not make them. There would be no emphasis on state borders. All continuing education should be to one national standard, and could be taken anywhere. No professional would be required to have more than one state license, which like a driver’s license, would be good in any state. State boards would be required to assist each other with rule enforcement, as do the police in state-to-state law enforcement. There should be a national database to weed out the crooks attempting to take their crime from one state to another.

All lending institutions should be subject to one set of federal banking laws and regulations. Each state should be required to adopt these laws and to assist in the enforcement of them. Since predatory lending is a bad thing it should be a bad thing not just in some states but in all. There should be a set of clearly written laws that must be followed in all states. This would save the banking industry billions of dollars and would also protect consumers better than today’s laws. The same would hold true for other consumer protection issues.

Other banking regulations pertaining to the financial strength of institutions would also be subject to one national standard and would be much easier to administer than today’s cumbersome system. Duplicate and overlapping federal regulations from different agencies should also be consolidated creating further efficiencies. We are only one country, why should we have multiple sets of rules and regulations.

The above suggestions would serve our consumers and our banks much better than the current system. It would create efficiencies that would reduce operating cost of banks and make loans more economical to consumers. It would be a fairer system to those professionals who constantly find themselves wondering if they are violation a law or regulation. And finally, it would be a system that would provide fairer more consistent protection to the borrowing public.