Denver I Q

Maybe not in your neck of the woods, but certainly in Colorado. Erin Toll, the Director of the Division of Real Estate in these parts was the beneficiary of a full page article (with picture) in Tuesdays Rocky Mountain News applauding her announcement of an “emergency rule” prohibiting prepayment penalties extending past the adjustment date of the mortgage interest rate. While that is probably a good idea, the emergency was 2 years ago. Such legislated regulatory edicts are similar to laws mandating building sprinkler systems after a few hundred people have died in building fires. Not a bad thing, just doesn’t do much for past victims.

I sat in on a closing a few years ago and listened to the buyers lender specifically advised the buyer of the prepayment penalty and the escalating interest rate. The buyers agent rephrased the statement, again advising the buyer to be aware. The buyer calmly and somewhat arrogantly said, “no problem, I plan to refinance the loan, because the market is going up” DUH! Let me repeat that, DUH! I sure hope that by now, everyone has a good definition of the word “market”.

While I have no doubt that many home buyers (borrowers) were led into really bad loans like lambs to a slaughter, it is also true that many buyers were betting with their mortgage loan like dice at a crap table. Unfortunately, there is no simple way to separate the two types of borrowers, so the politicians and regulators will continue to attempt to fix the problem using the broad brush approach, with a reasonable expectation that the overall housing market will benefit to some degree. I applaud their efforts, with two caveats, the first being that they not take too much credit when the market recovers and homeowners are made whole again, and secondly, that there be no crying when the inevitable effect of the legislated reactive cause makes a mess of the mortgage market, as if it could get any worse.

Where were the regulators when lenders were making loans at 125% of the value of the security.

-that’s 30-

Share This