The home loan market has evolved over the decades into a colossal and thoroughly complicated system that is so hard to get one's arms around with any authority. One of the latest additions to it were the otherworldly subprime mortgages and their subsequent securitization that eventually grew so tricky that few, if anyone for that matter, can today decipher what they actually look like. A fair part of the blame for the current real estate collapse can be squarely allocated to this out-of-control creativity.
The White House put forth seven questions for public comment in its quest to overhaul the mortgage finance system and it has to be commended for seeking ideas from the trenches. A bunch of sharp minds earn their living in there and can truly bring valuable mortgage input to the table. How much do their opinions matter at the end of the day is a different argument. Anyhow, these questions are rather academic-sounding - perhaps shaped by some Harvard PhDs on a mission - and cover a wide range of territory, essentially the whole industry, it seems. Does the entire system need to be overhauled? Not really. Many sectors in it work rather well, maybe needing just some updating to meet today's rapidly-shifting mortgage landscape.
Let's give it a go then.
Streamlining the present finance regulatory structure would sharpen things up a great deal. If done with foresight and minimum political interference it could become a durable bedrock on which to anchor the mortgage and real estate markets for a long and successful run.
Currently there appear to be somewhere close to a dozen federal regulatory agencies tasked to keep the system running as designed. It largely failed during the years leading up to the housing market climax. The structure is just too fragmented to be efficient. Too many players are involved in monitoring what goes on there. Often agency responsibilities overlap, leading to destructive turf wars and situations where nobody reacts because everybody figured the other departments were going to cover it. This is not the way to run a store as critical to the economy as it is.
If anything, the present mortgage regulatory regime should be merged into no more than six existing agencies. It's much easier to control anything when the moving parts are under one roof, or just a few roofs. Along these lines, instead of eliminating Fannie Mae and Freddie Mac - as some inside and outside government are clamoring - they could be consolidated into one GSE, or Government Sponsored Enterprise. Their current mortgage playbooks are essentially copies of one another, so it could be done without too much grief.
This input covers parts of several questions put forth by the Obama Administration. Its theme is simplicity. Something rather far-reaching needs to be done to prevent future mortgage and housing collapses of this magnitude from happening again, whether Wall Street likes it or not.