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Opinion, commentary and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.

Election day in the mortgage industry

May 17, 2011
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Standing out in the rain this morning as I waited to vote in my local primary election, I wondered, as I often do, how real is our democracy?

Is this just a show the powers that be put on to keep us believing that we have some control? Is our government like the nation’s largest mortgage lenders, pretending to give those they serve some choice in the matter while actually steering them into the products or services they want them to buy?

Is the process of giving the customer a voice just a tactic governments and corporations employ to occupy constituents while they get on with the business at hand?

We go to the polls and vote for school board directors when what we really want to vote for is more music and art education in schools, more gifted classes or a bit less nepotism in the hiring process. Not a single voter I saw this morning would have told me that they hoped the school board directors they were voting for would raise taxes. And yet, those who get elected most certainly will because our community is growing and we need bigger and better facilities, more teachers and more teaching supplies.

The argument is that we come together in a democratic fashion to elect leaders who will make the tough decisions for us, those decisions that would tangle up a committee and result in a standstill. Leaders, unlike committees, can take risks and that’s where the rewards are. It’s risky to vote for a new school building, but if the reward is better education for every child in the district, the leader will stand up for it. That’s a democratic republic and it works, in theory.

Our problem on the political side is that we took all of those leaders and put them into two big committees, the House of Representatives and the Senate, and then stood back and watched while nothing happened.

Businesses shouldn’t have that problem, in theory. They’re not democracies, not even close. My company certainly isn’t. Someone has to call the shots, be accountable. It’s the whole risk and reward thing and no one gets that better than American free enterprise. You would think that a well-run business with strong leaders would be in complete control of its destiny; think Exxon, Halliburton or any Top-10 bank. The problem, of course, is customers.

Anytime you add customers to the mix you’ve got problems. They always feel like they should have a vote. Why don’t you offer different loan programs? What do you mean by lock the rate? I thought the Real Estate Settlement Procedures Act guaranteed me the right to shop every aspect of my new home loan! Problems.

And customers almost never come up with solutions. They don’t have the background, the experience or the education. They don’t know the difference between a forward mortgage and a reverse, the primary and secondary mortgage markets or Fannie Mae and Freddie Mac (although I admit it’s getting a little fuzzy for me on that last one, too). They can’t balance their checkbooks and think the low monthly rate is the best indicator of a good deal on a new car. They think credit cards are cool. It’s not like we can count on borrowers to provide a vision for our future mortgage lending operations.

To its credit, the federal government knows this. That’s why the Financial Literacy and Education Commission (FLEC) (yes, we have one of those) is sitting down tomorrow (Wed., May 18) to talk about bringing these folks up to speed. My sources tell me this group will likely focus its efforts on school-aged kids, leaving the current generation stumbling around in ignorance. That’s not good. While FLEC is trying to bring American financial services customers up to speed, a new agency will work to put them in control.

You think I’m kidding? What do you imagine the Consumer Financial Protection Bureau is going to be all about? The rumors I’m hearing from the field indicate that the new agency isn’t staffing along lines familiar to the industry (i.e. into groups that seem designed to solve industry problems), which is making it difficult to effectively place the few career bureaucrats that actually understand our business. Departments are breaking along lines that make sense to consumers, who we’ve already established don’t have any sense.

The focus on the CFPB will be on the uneducated, opinionated and generally dissatisfied consumer. It looks like those will be the voices this new regulator will be listening to; those will be the votes it counts. Get ready for election day!

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