Wednesday, April 30, 2008


In a recent blog, we talked about how the mortgage industry’s reaction to the credit crunch mess is to impose policies that only make matters worse. The illustration given (from a recent Kenneth Harney column that appeared in the Boston Sunday Herald) noted how “…one major private mortgage insurance company has now designated over hundreds of geographic sections (by Zip Code) around the country as “declining market” areas, and stated that they will no longer sell private mortgage insurance coverage on condominium units in these areas. (This ‘ban’ is irrespective of the prospective condo buyer’s credit score or financial assets.)”

That blog further noted that “…this ban will almost certainly result in a further decrease in both the selling price of and, even more importantly, the number of condo units sold in these “banned” geographic areas (areas that are almost assuredly already experiencing great difficulty in their real estate markets).”

Well, not surprisingly, many others, especially consumer groups, have noticed the harmful effects of such ‘geographic bans’, and are trying to get such bans changed. As Harney points out in a follow up column (Boston Herald, 4-27-08):

“…a broad-scale reaction to declining real estate market policies [such as these ‘geographic bans’] is taking shape…Consumer and industry groups are demanding that lenders and investors abandon or modify [these] approaches.”

So far, in response, those in the mortgage industry are reacting by listening to the consumer complaints and considering making changes to their policies. But, as to any concrete changes – so far, none (and, we hasten to add, unfortunately, not surprisingly).

As Harney concludes, so long as the mortgage industry designate certain real estate markets as “declining market” areas:

“[If] you own a property or plan to buy in any of [these areas], expect [that buyers in such areas will have to] pay extra…for a loan…and [will likely encounter] a more limited menu of loan options. That’s the case even if the property is actually gaining in market value, not depreciating, and sales in [the] neighborhood are on the upswing.”

Which once again leads us to the same conclusion we’ve noted time and again on these pages and on “The Money Show”: As distasteful as government regulation is, one industry that absolutely cries out for government regulation is the mortgage industry.