I’m not one who lives in the past. However, when it comes to the housing market and mortgages, I do long for the old days.

Back in the 70′s and early 80s, I was a real estate broker. In those days, we didn’t need banks to “pre-approve” buyers. We did our own calculations to determine if buyers were likely to be able to qualify for a mortgage and, unless someone lied to us, it was rare that a deal fell apart because the buyers could not get financing.

In those days, most lenders required mortgage payments, which included property tax and insurance escrows, at or below 28% of the combined household income. And they wanted to see all debt, including credit cards, auto loans, and whatever, no higher than 35%. They did this, I believe, because they wanted to make sure they’d get their monthly payments on time, to help insure against buyers’ temporary financial setbacks due to illness or loss of a job, and because foreclosing was an expensive business that created nothing but ill-will.

Of course, in those days, there were a whole lot more local banks instead of national megabanks on every corner. And government mostly kept its nose out of the business. Little did brokers then know what was coming.

Fast forward to today, when government interference has tortured and distorted the mortgage market and banking business, and we have ever more regulations being promulgated by various busybodies in agencies hell-bent on justifying their existence. It’s gotten so bad, even critics of the banking business are starting to complain about all the regulations.

Bank Critic Goodman Sees Lending Chill in Regulations: Mortgages

Laurie Goodman, who says no analysts have been more critical of bank mortgage practices than her team at Amherst Securities Group LP, is siding with lenders when it comes to a flurry of new rules intended to protect homebuyers.

“We’re piling tighter standards on top of already tight credit standards, and because you have so many different entities responsible for making these rules no one is really looking at the interaction,” said Goodman, who’s based in New York and is a member of the Fixed Income Analysts Society’s Hall of Fame. “The combined effects could be devastating.”

The U.S. Consumer Financial Protection Bureau, Securities and Exchange Commission and Department of Housing and Urban Development are among regulators trying to reshape mortgage lending after poor underwriting contributed to a housing crash that triggered the worst financial crisis in seven decades. The proposals include new tests on borrowers’ ability to repay, guidelines for servicers and rules on origination fees.

Lenders already have been tightening credit standards even as borrowing costs fall to record lows. With the housing market showing signs of stabilizing, after home prices plunged more than 35 percent from a 2006 peak, banks are opposing some of the proposals on the grounds that it will make it harder for them to extend loans.

The concerns raised by Goodman should be taken seriously because she’s not overly sympathetic to the banks, said Representative Brad Miller, a North Carolina Democrat who’s on the Financial Services Committee. Regulators should make sure that requirements intending to protect consumers against abuses don’t make credit unavailable to people who ought to get a mortgage and could afford a home, Miller said.

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The simple fact is that as long as government, which can’t even run itself with any degree of efficiency, continues to distort the mortgage and banking markets with regulations designed to achieve social goals, we will never recover to the point of the market equilibrium we lived with when I was a broker.

Yes, back then, there were very nice people who could not afford to buy their dream house. There were folks who could not afford to buy any house. But those who did buy a house did so with the knowledge that only extreme adversity was likely to jeopardize their home.

If we really want to straighten out the housing market as quickly as possible, we’ll get government completely out of the business and let lenders return to setting qualifications and terms they know will ensure the greatest return on their investments, which will translate into the greatest number of people qualifying for and obtaining mortgages they can well-afford to live with.

That’s how I see it. What are your thoughts?

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