Editor’s note: Inman News has conducted a future-focused real estate industry survey as a part of its Roadmap to Recovery editorial project. This article is part of a series analyzing the results of the Roadmap survey. Inman News has also conducted a separate survey on the Future of Real Estate Commissions. Click to read the first, second and fourth articles in the series.
Tougher rules for those employed in real estate — especially lenders — is practically a given, Inman News readers say, but many hope that trade associations like the National Association of Realtors and the Mortgage Bankers Association will have the biggest say in drafting and implementing them.
In a survey of more than 700 Inman News readers, most saw lenders as the likeliest target of new regulations, followed by title insurers, real estate brokers and real estate agents.
"If brokers and agents were in the lending business, then more regulations would be in order," said one reader. "But they are not, so put the regulations where they were needed in the first place (on lenders)."
But others said they’d welcome more regulation of real estate brokers and agents in order to raise the bar to entry and the level of professionalism.
"I would like to see higher standards for the (agent) licenses," said one survey respondent. "It’s so easy to get a license. Make it tough so only competent agents are coming into the market."
"Under the leadership of the National Association of Realtors and local (Realtor) associations we should aggressively begin to change our entry and participation requirements to drive down our labor force count," read another typical comment. "Then, we should self-police with new standards for training and behavior."
Real estate brokers could also stand to be better trained — especially about loan programs, another Inman News reader said. "The days of, ‘Speak to my loan officer … I do not get involved with your loan choices,’ are over for Realtors, I think."
Asked who should legislate new rules or regulations, 37.2 percent preferred that trade associations take the lead, while 34.6 percent said the federal government should be in charge. But nearly as many — 34 percent — said rules and regulations are best left to states.
There is "too much bias at the state and trade association levels" for them to be effective in imposing new regulations, said one supporter of a lead role for the federal government.
"Trade associations have shown they are not able to promote consumer protection," said another reader. "Definitely NOT trade associations," said another typical comment.
But federal regulators have been lax in serving as a "watchdog" over lenders, another survey respondent complained. One reader recommended a "new federal oversight organization to keep everyone in line."
Many experts believe that one of the primary drivers of the housing boom was the ability of mortgage originators to approve questionable loans without any exposure to the risk involved. Trillions in loans were bundled into securities and sold to sometimes clueless secondary market investors. The resulting easy access to credit drove home prices up past the point where they were supported by fundamentals like income, rents and supply and demand.
While the secondary market for recklessly originated loans has collapsed, plans to reorganize federal oversight of the entire financial system to prevent a similar calamity are under way. In addition, a slew of new federal regulations on lenders have already been adopted. They include new guidelines for subprime and exotic loans, tougher enforcement of the Truth in Lending Act, an independent regulator of Fannie Mae and Freddie Mac, and a national licensing system for residential loan originators.
Other efforts to get the system working again — such as recent changes by the Department of Housing and Urban Development’s to Real Estate Settlement Procedures Act (RESPA) — are focused on restoring free market ideals of transparent pricing, an informed consumer, and competition between settlement service providers.
When asked what type of regulations they expect, Inman News readers ranked "tougher RESPA rules" second only to new rules governing mortgage originators.
Congress passed RESPA more than 30 years ago, largely to prevent settlement services providers like title insurers from paying illegal kickbacks for business referrals. Now HUD is using RESPA to introduce standardized loan disclosure forms and incentives for lenders to package settlement services with loans. By helping consumers shop for the best deal on a complete loan package — not just the loan itself — HUD hopes to spur competition.
Industry groups like the National Association of Mortgage Brokers and National Association of Home Builders have filed suit to block implementation of some aspects of the rule changes. Industry critics, including NAR, the Mortgage Bankers Association and the American Land Title Association, have also complained that HUD has overestimated how much consumers will comparison shop, and underestimated unintended consequences that could restrict competition, such as industry consolidation.
Some Inman News readers are equally skeptical about HUD’s so-called "RESPA reform."
"RESPA was in place prior to the crisis, the problem is everyone ignored it because no one was watching," said one reader. "Mortgage brokers need to be held to the same code of ethics as a Realtor."
"This mess was driven by greed," said another reader skeptical of new regulations. "It is not the rules for the agents or brokers or even the title companies that (caused) the foreclosures."
But others support efforts to drive down costs for consumers, increasing their home-buying power.
"Elimination of junk fees is a must," said one survey respondent. "Closing costs are too high and so is mortgage insurance."
The new RESPA rule barring homebuilders from offering incentives to buyers who use their affiliated mortgage and title insurance companies will create "much needed advocacy for the consumer," another reader said.
Regulators and consumer advocates have long complained that homebuyers pay too much for required settlement services like title insurance. A 2007 report by the U.S. Government Accountability Office concluded that consumers have a "weak position in the title insurance market," and recommended that regulators step up oversight and enforcement to ensure price competition and prevent illegal activities.
With the sale of LandAmerica Financial Group’s underwriting companies leaving just two players in control of about 74 percent of the title insurance business (see story), the need for reform may be more urgent than ever.
Asked if the upheaval in housing markets will encourage title insurers to offer a "low-cost, straightforward title insurance policy," only 16.4 percent of survey respondents said it would. Most (52.9 percent) said they didn’t know, while another 30.7 percent responded, "No."
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