Industry News

Real estate needs more regulation

Perspective: Loans, licensing and Fannie Mae

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Among all the mistakes that have led to the current real estate wreck, it now seems clear that lax government regulation should be at the top of the list. Ivory-tower economists may tout the undeniable theoretical benefits of unfettered markets, but those benefits clearly depend on the health of the entire system. When regulation backs off to the point of systemic failure, free-market enthusiasts have gone too far. Here are seven areas in which inadequate government control or oversight contributed to the current real estate crash: Negative amortization. Negative amortization isn't new, but during the recent housing boom lenders used this dicey financial mechanism to create much more complicated mortgage products, oftentimes with clever names like "pick a payment" mortgage. Negative amortization is problematic because it forces or encourages borrowers to increase the amount of money they owe over time, rather than repay their debt. Inadequate disclosure and lack ...