The White House remains on the wrong track in its thinking on how to solve the mortgage mess. They do not understand how the mortgage business really works, nor how banks function in this area of their business, nor how borrowers really think. While they have some very smart advisors who are trying to create a fix, the reality is they do not have people who are deeply experienced in commercial banking and mortgage origination and servicing. They are working under various major misconceptions of what could work and why, how homeowners think, and what will motivate lenders and borrowers to act on programs. The result is we have had several programs which have failed and the White House and Congress have no idea why. The main problem is they are starting with a bad set of assumptions and are locked into regulatory and procedural dogma which inhibit solutions. As a result the housing mess is with us for a long time.

The banks are being forced to adopt new regulations on an unending stream. More are coming not just from Dodd Frank, but from a regulatory mindset that bankers are bad and government regulators know better and all bankers are fat cats making too much money. The regionals are being forced to open branches in minority areas more than they already have done, and to make loans and mortgages there. The deposit base is not there and we are still cleaning up the subprime mess. This is a diversion of otherwise productive capital. Add to that the tens of billions of lawsuits, and settlements, the management time to deal with the unending stream of litigation, publicity seeking AG’s like in New York, and another huge diversion of capital and human capital is being diverted from the making loans. While there were some bad things done by bankers and especially Countrywide, not all bankers are bad, over paid fat cats. Far from it. Debit card fees should not be set by Senator Durban who would fail miserably at running a bank. Cutting this prime source of income along with other restraints which deeply cut into income is one more setback for banks trying to rebuild business.

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