And the Winner Is...

Remember the EPA contest with a $2500.00 prize for the best You-Tube video extolling the virtues of more regulation in American life? That contest, which was supposed to end May 17, was the subject of the first post I ever wrote for this blog. I thought about it again today as I read a letter that Ohio Congressman John Boehner (R-OH) has written to the White House regarding federal regulations.

According to the letter, dated August 16, the current Adminstration's published to do list of regulations includes "191 planned rulemakings, each with an estimated cost to our economy of $100 million or more and...a number of these planned rulemakings may each have an annual economic cost in excess of $1 billion. During a recent job forum conducted through our America Speaking Out initiative, the uncertainty resulting from such rulemakings was cited by private sector job creators as one of the primary impediments to job creation currently facing small businesses."

With the new unemployment filings right at 500,000 this week, the connection between increased regulations and jobs is worth taking a look at again. Boehner's letter seems to be focused on job growth and job creation--businesses cannot hire new employees because they are faced with too much uncertainty about the future.

But what about the connection between regulations and job loss? For example, what will be the impact of the new Federal Reserve rule regarding originator compensation? I have been reading commentaries from lenders and other participants in the mortgage community who have a much more positive outlook on the outcome of the Federal Reserve rule than I do. Many of these industry participants maintain that there is nothing to worry about because the rule will really not change the way that we do business since the yield spread premium is given to the borrower as a credit. I completely disagree with this assessment of the new rule, but even if they were correct, none of them is addressing the requirements to offer the lowest interest rate and lowest costs. The burden of proof that the originator offered every borrower the best deal that was available for the day is too difficult a burden for the small originator to bear. That is one reason that I believe that the new rule will ultimately force independent companies to close.

Consider that in 2006 there were an estimated 50,000 independent mortgage broker companies in the United States employing an average of 7 persons. Consider also that at that time mortgage brokers originated roughly 65% of the mortgage loans in the United States. Even without the regulatory changes we are seeing today, through market changes that number was supposed to drop dramatically. Today, mortgage brokers do an estimated 12% of residential mortgages in the United States. There are many fewer shops, but each independent mortgage shop that is left open represents at least one person who is still earning a living. If my assessment of the impact of the new rule is correct, and this new regulation closes the rest of us down, how many people will that add to the unemployment rolls? In my office, there are four of us. Four more unemployed people equals four fewer people putting money into the local economy and contributing to the tax base.

Maybe rather than just looking a job creation, we need to be looking at the impact of regulation on job loss. Maybe that would be a good video contest for the government--a contest for the best video explaining how and why you lost your job. The maker of the winning video gets hired by the government agency hosting the contest.

So who won that EPA video contest anyway? Apparently, no one. I checked the EPA website and there is no mention of the contest or the winner. A search of Regulations.gov also turned up nothing. A June 6, 2010, post on nextgov by Aliya Sternstein reports that the EPA came under serious fire from lawmakers for using tax dollars to pay contest prizes. Apparently Marsha Blackburn (R-Tenn.) and Pete Olson (R-Tx) reportedly entered the EPA contest jointly themselves with a video encouraging citizens to stop "silly regulations." (They promised that if they won, the cash prize would be donated to the Treasury after making the point that taxpayers may not want to see their tax dollars used to pay contest prizes.)

The Office of Management and Budget issued a memo in March stating that it is permissible for government agencies to hold contests with cash prizes, but the memo also stated that not all winners should receive an award--sometimes the best reward is just the joy and experience of participating. And the EPA itself had left room to refuse to award a prize if in their judgement none of the entries deserved to win.

So it appears that at the end, no winner was selected at all. And to me, this is the only fitting ending to such a contest. As in this contest, in life as government regulation dictates more and more of what we are allowed to do, where we are allowed to work, and what we are allowed to have, there are no winners.