Should Government Regulate the Mortgage Industry?

After the recent collapse of the mortgage industry, there has been an on going debate on whether government should regulate and provide more oversight on the mortgage industry or let if be self-regulating.  Many people assume, prior to its near overnight downfall, the industry was not regulated by the government.

This is not true. The Federal Government has control over numerous agencies that affect the mortgage industry either directly or indirectly. Some of the agencies that did regulate at the time of the collapse include: the Federal Reserve Bank, the Department of Housing and Urban Affairs, the Federal Housing Administration, and State Governments, just to name a few.

So what was the problem?

The issue was not the matter if whether there was or was not regulation, it was a problem of efficiency and accountability.  With that many Federal and State agencies involved, it is difficult to point the finger and where the problem lies.  In this case, the problems were found in numerous agencies. 

In brief, the major issue was the fact loans were being issued to people to purchase homes that they could not afford with terms that would sooner or later cause them to default on their note. 

From an accountability standpoint, who is at fault?   Well…. the answer is not so clear.  All agencies could have easily figured out what was going to happen, but the fact was, the programs were successful and the economy was booming, so why stop something so good. 

In a recent article, an interesting point is made on the issue with the government regulation that now haunts our economy.

They are politicians not CEO's, and they don't ever do anything until something goes wrong and then they just run around trying to get on TV talking about how they are going to "fix" this so it never happens again.

I’m pretty sure we have all seen this before.  So the question is, what should be the government’s role on the mortgage industry, if any?  The answer is not one that could be summed up in a single posting, so I will leave it up to you to foster a solution and report to the economists who are boggled by this issue day in and day out.