11/03/2010 03:06 pm ET Updated May 25, 2011

Mortgage Banker's Forecast: More Regulation Will Cost Consumers and Taxpayers

2010-11-03-MBAConventionBannersmall101410.jpgWashington, D. C. is hot, but the rest of the nation is not when comparing our unemployment rates to the nation's capitol. "The largest over-the-month increases in employment occurred in the District of Columbia." according to the Bureau of Labor Statistics' report for September's employment increases.

The national unemployment rate is 9.6 percent. Much of the nation, however, continues to struggle with double-digit unemployment. By contrast, Washington is hiring at a brisk clip to prepare for tightened regulation of financial institutions mandated by the Dodd-Frank bill. It was recently passed by Congress and signed into law by President Barack Obama.

According to Richard O'Conner with the Federal Housing Finance Agency, federal agencies will be hiring regulators to enforce the new rules currently being drafted. I met him at the Mortgage Bankers Association's annual convention in Atlanta, Ga. last month. He noted that one current opening is for a senior economist paying up to $162,435. The successful applicant will have to move to Washington.

I also met John Messina, Vice President of Global Market Development for Standard and Poor's. It is one of the three largest credit-rating agencies that told us sub-prime mortgage lending was okay because home prices would continue to escalate. Thus borrowers could perpetually refinance their way out of financial disaster. They also claimed that the enigmatic way in which mortgage-backed securities and derivatives are structured were safe enough to snag a "Triple-A" rating.

Now we know that the credit-rating agencies got it wrong. In fact, critiques say that they were a major cause of the financial collapse that precipitated the Great Recession.

Consequently I was surprised that Standard and Poor's had an exhibit booth at the convention. I asked Messina if his company is making changes to prevent recurrence of another financial meltdown. He said that he is not permitted to speak with the press. Instead of responding to my question, he handed me a Standard & Poor's-branded, extra large t-shirt. The mismatch for my small frame is an apt metaphorical answer to my question.

Meanwhile, Jay Ledbetter, president of California-based Bres Advisors, e-mailed me that he has a solution for homeowners, investors and bankers who want to know the best time to unload unwanted real estate. He announced the new software program at the convention.

Even though real estate sales prices are currently depressed, his model factors in the cost of holding on to properties compared to selling now. "The model uses a proprietary probabilistic model for the absorption rate down to the quartile within a zip code," he e-mailed. "The model incorporates the capital carry costs or discounts, property carry costs, and type of disposition, (traditional Realtor, auction, or bulk) to produce a minimum sales price or minimum bid price for each disposition method."

Furthermore, some properties need cosmetic updating such as painting, carpeting and new appliances. Others, especially foreclosed, bank-owned houses, have been gutted by the previous owners and require substantial rehabilitation. The repairs have to be factored into the cost.

Appraisers have used Marshall & Swift's data to estimate construction cost for more than 75 years. Alternatives include RS Means and Hometech.

According to convention speakers, borrowing cost will increase because of new regulations designed to protect consumers. They are also concerned that the new Consumer Protection Agency is tasked with writing rules that other agencies are simultaneously drafting. The lines of authority are not clearly drawn and conflicts are inevitable.

Because of the sluggish economy, the pundits do not expect a rush to implement the new rules. They anticipate things will remain unchanged until they meet again at next year's convention.

Jerry Chautin is a volunteer SCORE business counselor, business columnist and SBA's 2006 national "Journalist of the Year" award winner. He is a former entrepreneur, commercial mortgage banker, commercial real estate dealmaker and business lender. You can follow him at