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For the most part, mortgage brokers have had a free ride in the commercial world. They have had to hit minimum standards but for the most part their conduct has been outside the bureaucratic stranglehold of government regulation. However, now that the lending industry is in the media and Congress and the President have entered the conversation on how to recover from the subprime meltdown, expect the encumbrance of additional federal and state regulation on the industry and it’s players.

The bellwether states for adding additional regulation has been New York, Massachusetts, and California whenever the opportunity arises. These state seem to live to add to their already bloated bureaucracies and tax structures and then pave the way for smaller states to ingratiate themselves into industries. Their rallying cry typically is that we license and monitor manicurists, why should (fill in the blank) avoid our regulations, licensing fees, and inspection.

So the greed of a few will be the additional cost for the many and the introduction of a 500 pound gorilla to the mortgage brokerage world. The reality is that government will come in wanting their cut followed quickly be the lawyers who will be looking to get theirs. Soon every mortgage loan closing will require a couple of lawyers participating in the process to make sure that the arcane and confusing regulations the bureaucrats have added will be followed to the letter of the law.

If you are looking for the precedent, just watch New York State over the next year or so as they ramp up their new licensing and regulatory model. This quote from Percy Shelley from the poem Ozymandias captures my fear of governmental intervention.

And on the pedestal these words appear:
“My name is Ozymandias, king of kings:
Look on my works, ye mighty, and despair!”
Nothing beside remains: round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away.

I hope this is not the future of the mortgage broker after the government gets involved to a great degree in the coming years.

New York State will start requiring licenses for mortgage brokers and loan officers in January, a way for consumers and also potential employers to check up on workers in the lending world. Licensing is just a single piece in the intensifying push nationwide to stem the tide of mortgage fraud and cut down what may be seen as ethical lapses. Industry veterans and critics say more oversight could help stop the cascade of damages to Wall Street and raise the bar to entering a profession that has given itself a black eye.

“There’s a problem in the industry, and that’s who represents the consumer? No one does,” said Bill Matthews, senior vice president at the Conference of State Bank Supervisors, which advocates for state banking systems. “If you ask the brokers, they say, ‘We represent the lenders.’ When you ask the lenders, they say, ‘We represent the investors.’ via Newsday.com.

Related posts:

1. Why The Chrysler and GM Deals Will Raise Mortgage Rates
2. 7% of Homeowners and 40% of Subprime Homeowners 30 Days Behind on Mortgage
3. Poor Treasury Sales May Indicate Mortgage Rates Going Up
4. Lenders Buried Under Load of Mortgage Re-Works