Government is protecting first-time, lower- and middle-income borrowers out of homeownership.

That’s the opinion of Rob Couch, one of the commissioners for the Bipartisan Policy Center’s housing commission, sitting down after Tuesday morning with HousingWire at the BPC Housing Summit in Washington, D.C. Tuesday. And it was a view echoed by politicians and housing experts alike at the summit.

Couch is an attorney for Bradley Arant Boult Cummings, and also served as General Counsel of the U.S. Department of Housing and Urban Development from June 2007 to November 2008. Prior to his position with HUD, Couch served as president of Ginnie Mae, where he was responsible for administering its mortgage-backed securities program, valued at over $414 billion, and its $123 billion Real Estate Mortgage Investment Conduit program.

“With any pool of loans, some portion will go bad,” he said, speaking with HousingWire before moderating a panel that hit on similar issues. “Lost job, loss of spouse – some life-changing event.

“Then in the mid-2000s the stage was set for a lot of the traditional reasons for defaults being eclipsed by failures from loan features being inappropriate to that particular borrower. A three-year ARM or interest-only may be great for someone whose job will have them moving in three years, but not for someone just getting the loan for the low initial rate hoping the value of the home will rise enough,” Couch said.

While a lot of finger-pointing goes towards lenders and sellers of the bundled loans that led to the subprime crisis, at least some of the blame falls on the borrowers.

“The borrower shares blame in this – they signed. They breathed on the mirror,” Couch said.

Regardless, he said, in any pool of loans a certain percentage will go bad and for reasons other than traditional.

“Now, you can prevent all foreclosures by making no loans,” he said. “But we don’t want that. What we should be talking about is where the bar should be. I think it’s too low right now.

“You have to give good people the opportunity to fail. We are setting the bar too low,” Couch said. “We should be shooting for higher delinquencies and foreclosures. We should be willing to run a little more risk.”

He said that with the regulations, QM and other regulatory limits, the housing industry and mortgage finance industry are trying to be too safe.

“But the net result is home ownership is plummeting. First-time home sales are at their lowest in 40 years. The reason is the bar is so low that this loss level has the biggest impact on first-time, low- and moderate-income borrowers,” Couch said. “The very people we are supposed to be trying to help and protect.”

The rules for protecting buyers are pricing them out, Couch said.

Three ways to make money in mortgage lending, he said – points and fees, yield spreads, and servicing sales.

“There’s a 3% cap on points and fees. So on a $150,000 home, that’s $4,500. But the (Mortgage Bankers Association) will tell you that the average cost of originating a mortgage is $8,000. And lenders will tell you that the smaller, marginal loans are much more expensive to originate,” Couch said.

“For the yield spread premium, that’s also capped,” he said.

The third, sale of servicing, has its own problem.

“A servicer will tell you it costs $10 a month to service a normal mortgage,” Couch said. “But if it goes past 60 days it costs $100 a month to service. So servicers won’t pay you much for low-FICO loans because it may be a money loser.”

That’s all three, Couch said.

“You can’t make it on the points and fees, can’t make it on the yield spread, can’t make it on the servicing – so what do you do?” he asked. “You don’t make the loan.”

The bottom line?

“All the laws set up to protect low-income, moderate-income and first-time buyers are protecting them out of a chance to buy a home. And consider the difference it makes on the community to have homeowners, to take chances on people on the margins and have them grow into responsibility,” he said.

Couch said he is not talking about reckless lending, but rather more flexibility in expanding credit and in making up costs that would subsidize a prudent but realistic amount of foreclosures, so that lenders would open up to a broader consumer base.