Industry divided over regulation issues.
National mortgage broker licensing appears on the way to becoming law this year, now that Congress, the Bush administration and the mortgage industry all agree there should be uniform standards for brokers.
But precisely who would be covered by the requirements and how the rules for a national broker registry would be applied remain a matter of debate, both in industry circles and in Washington.
Last month, a presidential working group chaired by Treasury Secretary Henry M. Paulson Jr. called for a national mortgage broker registry. "Mortgage brokers will be held to strong national licensing and enforcement standards," Paulson said when he announced the group's recommendations. "There will be stricter safeguards against fraud, and full and clear disclosure to borrowers about home loan terms, including long-term affordability."
A bill passed by the U.S. House of Representatives late last year would set minimum education standards and a national registration system for anyone who brokers mortgages, whether that person works as a middleman between consumers and lenders, or directly for a lending institution.
Legislation recently filed in the Senate would establish a similar registry, but some brokers who work for lenders would not be included in the registry, although their employers would be. Today, there is no national broker registration, and state regulations have produced a patchwork system, with wide variations in requirements.
"There are some states that don't have a licensing requirement at all or don't have an education requirement at all," said Frank Bowersox, president of the Pennsylvania Association of Mortgage Brokers.
Regulation is being called for in the finger-pointing that has followed the subprime mortgage collapse. Critics blame mortgage brokers for preying on homebuyers with deceptive loans, then making a quick exit by selling the mortgages to investors.
"There are no national standards for mortgage brokers and lenders today, and this lack of regulation has created an environment in which bad actors can take advantage of American homebuyers," said Senator Diane Feinstein, a California Democrat and author of one of several pieces of legislation on broker licensing now before the Senate.
Organizations that represent brokers acknowledge the need to weed out individuals who mislead consumers, but they say other players in the mortgage debacle also are responsible. Brokers point out that the products they sell are devised by lending institutions.
"I think to be fair about it, the blame can be pointed at everyone," said Kenneth Travis, a mortgage broker in Longview, Texas, and a board member of the National Association of Responsible Loan Officers. "Originators did not educate the consumers well enough: Some of it was ignorance, some of it was predatory. The consumer is partly to blame. They signed on the dotted line."
Regulation of brokers also was inadequate, according to Allen Fishbein, director of credit and housing policy for the Consumer Federation of America. "We certainly think there needs to be a better system," he said. "It's very uneven now."
Bowersox said he supports national registration that would identify brokers who have behaved improperly. "Now, if their boss catches them doing something wrong and fires them, they can go down the street and get a job with another company," he said.
The mortgage broker profession is divided into several categories. The most common consists of brokers who work as independent middlemen -- signing up consumers for products, then receiving a commission from the lending institution. Other brokers have access to their own lines of credit, and they typically structure their own deals with mortgage buyers. In a third category are brokers who are employees of banks or other lenders.
Organizations that represent brokers have backed the concept of broker registration. "We need to make sure there is better regulation of the mortgage industry in total," said George Hanzimanolis, president of the National Association of Mortgage Brokers.
But who would be required to register is a matter of debate. The National Association of Mortgage Brokers, which represents independent brokers, wants everyone who sells mortgages included.
"We have to treat everyone fairly and equally," Hanzimanolis said. "We don't want to create safe harbors for bad people."
Meanwhile, organizations that represent banks and their broker employees contend that current banking laws already strictly regulate the companies' actions. Registering individuals who work for banks is unnecessary, according to Kurt Pfotenhauer, senior vice president for government affairs and public policy for the Mortgage Bankers Association.
"Companies that already comply with rigorous requirements for their employees should not be required to license them individually," Pfotenhauer said in recent congressional testimony.
The House-passed bill would affect all categories of brokers. To be licensed, a broker would have to pass a criminal background check, complete 20 hours of education, score 75 percent on an exam and take eight hours of continuing education annually.
The legislation pending in the Senate has similar requirements. Under the congressional bills, states could still have their own registration requirements, but they could not be less stringent than the national standards.
A spokesperson for Senator Feinstein said the senator is looking to advance the bill, which has so far not been taken up in committee. "The window for making these changes is really over the next couple of months," said the Consumer Federation's Fishbein.
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|Publication:||The Real Deal|
|Date:||Apr 28, 2008|
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