Leitura recomendada II

When large numbers of ordinary homeowners start to default and lose their homes, we will start to hear cries from politicians to add further regulation to the mortgage industry. Those cries will be based on the claim that the poor unsophisticated first-time buyers, at whom these loans were directed, did not really understand the terms of their mortgages. This will sound plausible, because many of these loans are indeed quite complex and confusing.

But I think these calls will be misplaced for one simple reason: The mortgage market is already highly regulated. Buying a house and taking out a loan are both processes that are loaded with pounds of paperwork for all the governmentally mandated disclosures. The current regulation may even be part of the problem. That pile of disclosures can induce a semi-catatonic state. “I see nothing. I feel nothing. I sign my name here. I initial there.” People see those piles of paperwork and assume everything must be all right. The regulation itself induces complacency. I seriously doubt the government can create another layer of regulation that will really protect people against big mortgage mistakes.

What does morality have to do with this problem? People are not being entirely honest. Although there surely are some cases of outright fraud, that’s not primarily what I’m talking about. I’m talking about self-deception. People talk themselves into overlooking problems because they are so eager to achieve their goal of buying or selling a house.

Look how many people must cooperate to make a questionable loan. The realtor has to be so eager to make a sale that he helps the buyers get a loan, any loan. The mortgage broker has to be so eager that he fudges the borrowers’ qualifications. The buyers have to be so eager to buy the house that they don’t take seriously the possibility of being unable to make the payments down the road.

All of these people indulge in some wishful thinking. The fact is that any one of them can pull the plug on a bad deal.

We don’t need another layer of regulation on the mortgage market. We need to enforce the rules we have. And we need to be vigilant and responsible consumers. The government can’t protect us from everything.