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October 8, 2012

Presidential Debate recap: on mortgages, regulation, and the housing collapse

by Central Coast Lending
White House

The October 3rd presidential debate between President Barack Obama and Mitt Romney focused almost entirely on the economy. The theme of the debate (and the election) turned to the roll the government should play to best stimulate economic growth and support citizens during times of turmoil. In other words: jobs, jobs, and jobs. Who creates them and how best to do so?

The presidential candidates did briefly address the housing market collapse and the subsequent regulatory response. Following is a few passages of the discussion as transcribed in the New York Times.

[Related: Mortgage fees up 30 percent since 2008... government regulation to blame?]

First, we had Mr. Romney mention “excessive” regulation during President Obama’s first term, specifically using Dodd-Frank as an example. He argued that provisions in Dodd-Frank led to the closure of 122 community and small banks.

MR. ROMNEY: “With some of the legislation that’s been passed during the president’s term, you’ve seen regulation become excessive and it’s hurt the — it’s hurt the economy. Let me give you an example. Dodd- Frank was passed, and it includes within it a number of provisions that I think have some unintended consequences that are harmful to the economy… There’s been — 122 community and small banks have closed since Dodd-Frank.”

When asked if he would repeal Dodd-Frank, Mr. Romney responded that some regulation is important and that he would “repeal and replace.”

President Obama addressed the origin of the housing crisis.

PRESIDENT OBAMA: The reason we have been in such a enormous economic crisis was prompted by reckless behavior across the board. Now, it wasn’t just on Wall Street. You had — loan officers were — they were giving loans and mortgages that really shouldn’t have been given, because they’re — the folks didn’t qualify. You had people who were borrowing money to buy a house that they couldn’t afford. You had credit agencies that were stamping these as A-1 (ph) great investments when they weren’t. But you also had banks making money hand-over-fist, churning out products that the bankers themselves didn’t even understand in order to make big profits, but knowing that it made the entire system vulnerable.

Then, President Obama made his case for Dodd-Frank and the increased regulation and oversight of banking and finance:

PRESIDENT OBAMA: So what did we do? We stepped in and had the toughest reforms on Wall Street since the 1930s. We said you’ve got — banks, you’ve got to raise your capital requirements. You can’t engage in some of this risky behavior that is putting Main Street at risk. We’re going to make sure that you’ve got to have a living will, so — so we can know how you’re going to wind things down if you make a bad bet so we don’t have other taxpayer bailouts.

Mr. Romney responded with a few interesting nuggets in his response for the mortgage and housing market crowd:

MR. ROMNEY: Dodd-Frank correctly says we need to have qualified mortgages, and if you give a mortgage that’s not qualified, there are big penalties. Except they didn’t ever go on to define what a qualified mortgage was.

It’s been two years. We don’t know what a qualified mortgage is yet. So banks are reluctant to make loans, mortgages. Try and get a mortgage these days. It’s hurt the housing market –

The debate switched directions soon after.

There is no question that it has become much harder to borrow money and obtain a mortgage since the bubble burst. Banks have been very careful about lending practices, and the industry is still adjusting to the changing laws and regulations. Underwriting standards have become more stringent and rigorous. In the current economic climate, banks are hesitant to take on additional risk (mortgages) and new regulation has, if anything, been a disincentive for banks to loosen up.

Central Coast Lending owner Jason Grote, speaking as a loan officer, wanted to respond to President Obama’s characterization of loan officers in the housing market crash. He argues that while some of these loans were destined to fail, it was the fast and loose “make a quick buck” lending environment encouraged by banks and investors that led to low underwriting standards and dangerous loans.

Jason Grote: Loan officers are not tasked with evaluating credit worthiness of borrowers – that is the bank underwriter’s job.  Nor do loan officers make loan programs – they only offer what the banks make available.  So much of the regulation has been targeted at the loan officer and it perpetuates the misconception that the loan officer was the bad guy.  You may argue that a loan officer should not have allowed a person to do a stated income loan, because if the borrower could afford it, he could qualify full docs, but why did those loan programs even exist?  The banks invented them, they wanted stated income loans. Does the tail wag the dog?

We will be reporting more about the candidates position on mortgages, real estate and regulation as the election draws closer. Stay tuned.


Central Coast Lending is a California mortgage brokerage based in San Luis Obispo County. With offices in San Luis Obispo, Morro Bay, Paso Robles, and Arroyo Grande, Central Coast Lending is the top source for Central Coast mortgage, real estate, and home loan needs. To see why using a broker offers lower rates and superior service, click HERE. For a free, hassle-free online pre-qualification click HERE or call 805.543.LOAN to talk to one of our expert loan officers.

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