When I first joined the mortgage broking industry I was struck by all the calls the industry itself made for regulation. Mostly this was not out of some evil scheme that would be easily predicted by Chicago inspired public choice theory. Brokers weren’t particularly in favour of it, though many regarded it as inevitable and therefore backed light and national regulation. But the banks wanted it. They wanted it partly for similar reasons, to rationalise and standardise the way things were done and not have umpteen state regimes foisted upon them.
But one of the heads of third party banking in one of the big banks, someone who made sure that Peach Home Loans didn’t get to write – and so discount – any of the loans from her august organisation the moment she heard that we were discounting, spoke of the importance of having barriers to entry in broking. Of course it was easy to write this off as the usual industry fondness for such things. It was that. But using my trusty and patented Lateral Economics Information Detector ® I tried to see it from her point of view. What she was thinking about is that you need barriers to entry to provide a natural disinclination for brokers to do bad things – she was no doubt thinking of things that might annoy banks, but she was also thinking about fraud.
And she was right. As we read in the latest industry mag The Advisor:
New figures have revealed the level of mortgage fraud has almost halved two years after the national licensing regime came into force.
Those partial to the dark arts of economics will be pleased to hear that this does not make me a supporter of barriers to entry. But you have to give credit where credit’s due.
Although perhaps not as much credit as your numbers make out, as the total number of transactions has dropped considerably since 2009 — almost 30% compared to 20011 (e.g., here). That number could be even worse if the average buyer is also more conservative and hence less likely to be defrauded. Perhaps they should compare with the 2008 or 2007 numbers instead.
Also conrad, 2009 strikes me as a year in which a lot of fraud might have been discovered. More analysis is required.
The other thing suggested by the article is that a licensing regime provides a quick and easy punishment.
I am reminded of what Galbraith said about the aftermath of the bust of 1929- the end of a period of great “bezzele” (and imaginary wealth creation)- people become much more careful about their money and the level of bezzele drops, for decades .