A Measure to Ease Mortgage Rules? Not So Fast, Critics Say.

Brad Woodhouse and other staff members of Americans United for Change are moving out of K Street's enclave of liberal groups.
Brad Woodhouse and other staff members of Americans United for Change are moving out of K Street's enclave of liberal groups. (By Bill O'leary -- The Washington Post)
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Tuesday, March 4, 2008; Page A17

The housing market has been in meltdown largely because home buyers too quickly snatched up mortgages they could not afford and lenders were too eager to sell those mortgages to them. As a result, the last thing anyone would want is to ease government regulation of mortgage lending.

Except, maybe, if you're a mortgage broker.

The National Association of Mortgage Brokers, in fact, succeeded in quietly doing some deregulating in a bill that passed the House last year. Authored and co-sponsored by one of the industry's champions, Rep. Gary G. Miller (R-Calif.), the provision would end the requirement that mortgage brokers be audited annually in order to deal in mortgages insured by the Federal Housing Administration (FHA).

Miller represents part of Orange County, which is to mortgage-related industries what Connecticut is to insurance companies. Ditech, for example, is located in the county (though it's not in Miller's district, his office says).

The measure, which is part of a larger bill that would overhaul the FHA, is opposed by the Bush administration, the inspector general of the Department of Housing and Urban Development and a list of major business organizations, including the Mortgage Bankers Association, the American Institute of Certified Public Accountants and the American Bankers Association.

These opponents argue that the provision would put the FHA and the loans it insures at unnecessary risk. Audits are the only way, they say, that the government can be sure that the loans meet the agency's standards and that certain mortgage brokers are financially sound enough to weather the kind of reversal that the housing market is now experiencing.

In late January, the business groups that are against the provision wrote to Congress to summarize their view. "At a time of rising defaults, it is critical to both FHA and its customers that adequate supervisory processes remain in place," the letter states. "These audits protect not only the safety and soundness of FHA, but homebuyers as well."

To be fair, self-interest is motivating at least part of this opposition. One group pushing hard to defeat the Miller provision is the Affordable Housing Association of Certified Public Accountants, which represents auditors who specialize in government-related work such as this.

The mortgage brokers, for their part, want to avoid the expense of the audits. But they also contend that the provision would help the housing market. A Miller spokesman asserted that the measure would make mortgages more available by increasing the number of small and medium-size brokers who could dispense them. These smaller brokers are now prevented from qualifying for FHA lending because they find the audits, which can cost several thousand dollars, too expensive, the spokesman said. In addition, he said, the FHA program would be protected because brokers would have to put up a bond to cover potential losses.

The Senate, however, does not agree and did not include the Miller provision in its FHA overhaul legislation, which it approved last year. The final bill is being negotiated by House and Senate conferees, and congressional aides said it's up in the air whether the measure will be included.

Lobbyists Need Not Apply

Mark P. Lagon has been director of the State Department's Office to Monitor and Combat Trafficking in Persons since last year. His office coordinates federal efforts to fight modern-day slavery, including forced labor and sexual exploitation -- a fairly big task.

The job also involves fielding efforts by governments that do not believe they should be criticized for abetting human trafficking. That's where lobbyists come in.

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