While Congress deliberates on the future of the nation’s mortgage market, some within the government are calling for restraint in regulatory reform. Housingwire.com reports William Emmons, an economist at the St. Louis Fed, is calling for patience and social support as the clearest way to economic recovery.

Emmons makes the argument that government intervention, particularly measures aimed at postponing or eliminating the foreclosure process, will only serve to further tighten the credit crunch that already holds the nation’s economy in its teeth. Instead, he believes Federal funds and regulations should be aimed at helping foreclosed homeowners recover from their unsuccessful forays into homeownership. By focusing on the “cause,” rather than the “symptoms” of our current economic woes, and by allowing markets to sort themselves out, Emmons argues prudent, forward-looking regulatory reforms offer us the fastest route to economic health.

Whatever your opinion on upcoming regulatory reforms, it is clear the actions of the government in the coming months will have a massive impact on housing markets and the economy as a whole. Reforms that promote a healthy and functioning mortgage market while protecting borrowers from the types of abuses so prevalent during the boom will allow investors and homeowners alike to make the right choices in the coming years.

The real estate and mortgage industries are busy battening down the hatches for the inevitable tidal wave of regulatory reform. Meanwhile, Housingwire.com reports government officials are already hard at work trying to outdo each other as the protector of the “everyday common household victim” of our “national crisis.”

Two illustrative examples of regulatory restructuring have been rolled out in last two months. In New York State, legislators passed a series of measures essentially placing a one-year moratorium on foreclosures. Under the program, borrowers already in default will pay a nominal monthly sum and be eligible for state funds to supplement existing mortgage obligations.

In California, lawmakers passed legislation that would require more extensive notification for delinquent borrowers before the foreclosure process can begin. Homeowners would be entitled to meetings with servicers to learn their restructuring options, placing a greater onus of responsibility on servicers to reach out to borrowers prior to beginning foreclosure proceedings.

Both measures are designed to ease pressures on distressed borrowers, but the New York plans go well beyond those in California. The California laws are designed to ensure increased communication between borrower and lender. The New York law is designed to put a halt to the process of foreclosure, presumably to await more extensive reforms or bailout plans still to come.

In both states, these measures mark the tip of the iceberg in the process of reforming regulatory frameworks for mortgage lending. In this election year, public support is swelling for pieces of legislation like these and even larger moves are likely on their way.

The challenge for regulators — and the lobbyists so generously pleading their case — is to enact rules and enforcement schemes that prevent fraud and predatory lending, without being too constrictive to legitimate business. Many such rules already exist; it remains to be seen if the fallout from the collapse of the mortgage industry can convince regulators to enforce their own rules.