This article is Part II from a series from columnist David Fletcher. To read Part I, please click here.

RT: The property may be in foreclosure, but not foreclosed. It is still the owner's responsibility to pay the fees.

Making bad loans should only affect the company making them. Some banks have stopped paying the assessments that are due to the home owner associations when they are pursuing foreclosure. This places an obvious stress on the entire community that is dependent upon those funds to keep the street lights on and the grass cut.

RT: You seem to have strong feelings about this.

Yes, I do because I think that it is simply wrong to allow the actions of pursuing troubled loans to cause the price of every home in the neighborhood to fall thereby damaging every resident, local business and even the value of the other mortgages in every lender's portfolio.

RT: Are we discussing homeowner rights, here? Homeowner's and communities need to have rights and recourse against mortgage lenders that do not pay the fees required of every other home owner. This right needs to be in place to maintain the value of all of the homes in the community.

Housing is a national concern. The rights of homeowners and tenants must become more important to prevent even more damage.

RT: Lenders have the right to expect to get their money back, do they not?

Of course they do. Lenders need to have the legal right to get their money back. The point here is that they need to behave responsibly. A doctor should have the right to transplant a heart, but he should not have the right to kill the guy on the street to get it for the patient.

RT: So, the lender has a moral obligation, if not a legal one to protect all owners?

Other home owners in the neighborhood have made the long term commitment to live in that community and they also have an important stake in the long-term value of the community just like the lender has an interest in recovering its money.

RT: You said the lender is destroying his own security. Explain.

When a lender takes action that destroys the value of the surrounding properties, this action affects everyone, even the other homes that they have financed. Something has to be fundamentally flawed when a lender actually takes steps to destroy its own security that it has in the other properties that it has financed.

RT: What principles would you apply going forward?

A good first step would be to have the entity that issues a mortgage effectively guarantee it. If a mortgage is going to become a commodity and be traded, it should not be able to be sold without fully disclosing the underwriting criteria to the entity that buys it.

RT: How can this be prevented in the future?

It might be a good time to consider using the same type of checks and balances in the mortgage business that are in place to regulate a company that is going to trade shares on the stock market if these mortgages are going to be sold.

RT: Who should guarantee the loan? If mortgages are going to be sold, then the originating company should remain in effect a "guarantor" to the loan. This would remove the incentive to simply write paper and then pass the high-risk paper on, and keep the low-risk servicing part of the business.

RT: That's a lot of pressure on the underwriter.

Underwriters need to focus on making sure that the borrower has the financial capability to repay a loan and that the underlying asset has the value required to secure the loan, not to operate a business that is focused on flipping the paper.

RT: Should mortgage lenders be licensed? Anyone representing a lender or involved in approving the documentation should be licensed, insured and held responsible for the information on the document that is being relied upon to make a decision to fund or transfer a loan.

If there proves to be a problem with the underwriting, the person that wrote the loan should be called upon to prove that they actually obtained the documentation and information that would be reasonably required and that they actually verified it.

RT: Some will resist your ideas.

I don't understand the resistance to taking the right steps to ensure that the American housing industry is stabilized and continues to be rock solid in the future. The consumer's interest and rights to quiet enjoyment of their home needs to take priority over the interests of poor or predatory lending practices."

RT: So what should be done? If mortgages are now going to be a commodity that is going to be packaged and traded, the way that these transactions are going to be processed needs to be controlled and tightly regulated. There is an immediate need to establish the policies, including requirements for disclosure and representation warranting the product and of course the rules and regulations governing the trading transaction must in place.

Regulation with teeth is probably going to be the answer. The tightly regulated American stock exchanges and commodity trading floors are the model for the rest of the world and it works.

RT: Thank you, Mr. Green.

And thank you, Mr. President, for being open to new ideas and opinions. It may be time to think 'risk avoidance' with the taxpayers money when it comes to mortgages, more so than what appeared be the "owner-on-every-lot" approach.

Pride in future home ownership may come more from having a small mortgage than a large, heavily leveraged home.

One thing is for sure; America needs lenders it can trust, and lenders need mortgage programs that make sense, not just profits.

Published: March 25, 2010

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David Fletcher has been a Florida real estate condominium and new homes broker for 30 years with more than $3 billion in new construction sales. In 2008, Keller Williams Realty International named him a "Lifetime Achiever." Along the way he has chaired the Florida Homebuilders Associaiton Sales and Marketing Council, trained thousands of general agents and on-site agents to work together, and was a featured speaker at the National Association of Realtors. Recently he founded New Homes Niche, a builder-certified co-broker training system "to meet the growing trend we see in short sale buyers moving to new homes for a lot of reasons." Call David at 407 234 2349, , and visit his website.