The purpose of regulations is to protect the consumer. So why does it seem like they're sometimes having the opposite effect?
On the April 19 episode of my Lykken on Lending podcast, we invited legal expert Mitch Kider back on the show to discuss some of the legal ramifications of the current regulations we're dealing with in the mortgage industry. Throughout our conversation, we came to focus on the effect that the regulatory environment is having on growth. Is the industry being made better off or worse off by the current regulations?
According to Mitch, the answer is clear; regulation is stifling growth and investment. For example, due to the threats implicit in the False Claims Act, many lenders are simply refusing to offer FHA Loans. Of course, this is bad for the industry because it gives us fewer options for engaging customers in loan originations. But what impacts the industry also impacts the consumer...
With fewer lenders offering FHA loans, consumers are finding narrower paths to purchase. Options are becoming even more limited -- and even more so for those who have fewer options in the first place. If the purpose of regulation is to protect the consumer, it can sometimes seems like it's having the opposite effect. When the industry loses incentive, the consumer loses opportunity.
