I'm from the Government, And I'm Here to Help: Screw Up Edition MMDLXVII
When will bureaucrats and politicians ever understand that their meddling in markets always produces unintended consequences which most of the time harm more people than their intended actions help? The Washington Post today has another sad example of this type of government "help." As the Post reports:
A District effort to help distressed homeowners threatens to bring a halt to the sale of foreclosed properties in the city, depress home prices and cast new uncertainty on the local housing market.
The District implemented regulations in May requiring lenders to enter into mediation with a homeowner before foreclosing on a home. But now, two large title insurers, which have about 80 percent of the D.C. market share, have stopped insuring the sale of foreclosed properties, saying the law makes it too risky.
Without title insurance, obtaining a home loan is extremely difficult. The policy protects mortgage lenders from challenges to the title of a property. The problems could move beyond the foreclosure market to all home sales if lenders decide that any District home that could potentially fall into delinquency would face a similar problem down the road, according to industry officials and local lawyers. If these foreclosed properties linger on the market, unable to be sold, they could bring down neighborhood prices, they said.
These laws "are in cred ibly destructive economically. They're really creating a dead zone in the housing market," said Kurt Pfotenhauer, chief executive of the American Land Title Association, an industry group.
The D.C. Department of Insurance, Securities and Banking, which wrote the regulations, proposed an amendment this week to the D.C. Council legislation on which they're based. But the issue is not likely to be addressed before fall, said council member Muriel Bowser (D-Ward 4), who co-sponsored the legislation.
"This is one way that the business tries to get its way — with threats of calamity. This is how the little guy gets [hurt]," Bowser said.
I personally think that title insurance is something of racket, but still skittish lenders require it. Now for the pièce de résistance:
The District has been shielded from the worst of the housing crisis but still faced an increase in foreclosures during the recession. That, along with widespread problems in mortgage documentation uncovered last fall, prompted the D.C. Council to pass foreclosure mediation legislation in November aimed at helping struggling homeowners come to terms with their mortgage lenders.
During the rule-making process, members of the title industry asked for a certification asserting that a foreclosure had complied with the legislation, said Christopher Weaver, the D.C. associate commissioner for banking. But that would have shifted the liability for any mistakes to the city, he said.
"I personally think that's just too much risk for the District of Columbia," Weaver.
That's right. Standing behind its own regulation is too risky for the city government that is trying to impose it on private businesses. Really!
Disclosure: My wife and I own a condo in DC. Good thing we're not planning to sell it any time soon.