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Accounting for Bad Lenders: Mortgage Brokers Chafe Over States’ Regulatory Plans
Posted By beth On June 27, 2007 @ 2:07 PM In Finance and Economy,Finance, Economy & Government Issues | Comments Disabled
By Lew Sichelman
RISMEDIA, June 28, 2007?(MarketWatch)?A battle is brewing over a plan to create a national registry that would license mortgage brokers and suspend those found guilty of predatory tactics and other wrongdoing.
On one side is the Conference of State Bank Supervisors, which is working with state mortgage regulators to develop a uniform licensing application for use by all states starting in January. Eventually, the nationwide system would prevent miscreants from moving from place to place.
On the other side is the National Association of Mortgage Brokers, which says the CSBS model is defective because it singles out loan brokers who originate loans but don’t actually fund them.
Since there are rotten apples in every origination channel, the NAMB is backing the creation of a federal registry, one run by the Federal Trade Commission, the Federal Reserve or some other agency that would flag the con artists wherever they are so they can never work in the mortgage business again.
“There is no reason to regulate just mortgage brokers” new NAMB President George Hanzimanolis said at the group’s annual convention. “If a bad broker is found out, he can just go to work for a mortgage banker.”
CSBS’s plan is well underway. It has been working with the American Association of Residential Mortgage Regulators for the past two years to develop a uniform licensing application.
With the CSBS registry, participating states will accept a standardized and centralized licensing exam, making it less expensive for lenders who operate in multiple jurisdictions. In that originators would be given a permanent license number, the registry also will be used to track unscrupulous brokers who tend to move to other places when they are carded for bad deeds in one place, apply for a new license and set out their shingles somewhere else.
Under NAMB’s alternative proposal, every originator no matter who he or she works for would pay a fee to be in the registry. The money would be used to cover operational costs, create funds earmarked for state enforcement of mortgage laws and assist in on-going consumer financial-literacy programs.
Although the brokers’ plan was put into play just a few weeks ago, it is already gaining some traction on Capital Hill, thus setting up another fight over states’ rights. CSBS is a private association set up to defend state authority to regulate state-chartered banking institutions. AARMR also is a trade group.
NAMB believes that individuals should be held accountable for their behavior. If a mortgage originator is found guilty of bad behavior, he or she should be booted from the business permanently. That way, the so-called “bad actors” would be unable to move within the mortgage community at will, the group says.
“Without a focus on individual accountability, we can never truly have consumer protection. Individuals harm consumers, not companies,” NAMB’s previous president, Harry Dinham, said when the plan was introduced. “The purpose of this registry is to establish a consequence for bad actions. Mortgage originators must have something to lose if they act unethically.”
Individuals or companies on the hook?
Mortgage brokers write about half of all such loans, according to estimates, while mortgage bankers actually fund them. However, many bankers also have origination staffs, which are known largely as loan officers or representatives as opposed to brokers.
The politically powerful Mortgage Bankers Association is against having to register loan officers who work directly for its members companies, saying it would be too expensive and cumbersome.
At this weekend’s NAMB convention, Dinham’s successor took the ball and ran with it, saying the CSBS proposal is flawed because it excludes too many people.
“There are too many carve-outs,” Hanzimanolis told reporters. “There are bad apples in every segment of the mortgage business. It shouldn’t matter whether they work for large companies or institutions which are regulated by a different entity. All mortgage professionals need accountability.”
The Tannersville, Pennsylvania, broker, who runs Bankers First Mortgage, a five-office firm with a total of 30 employees, said he finds it “frustrating” that brokers are often singled out as the source of abusive lending practices, not just by regulators and lawmakers but by other segments of the mortgage business.
“There is always one group pointing the finger at another group, trying to deflect or place blame,” he said. “If Americans repeatedly choose mortgage brokers time and time again, it seems to me that we’re not part of the problem, we’re part of the solution.”
Hanzimanolis also said it is wrong to characterize the brokerage business as unregulated and to hold brokers out as “scapegoats” for the ills of an entire industry. Brokers are regulated in all 50 states, he said. “And in many cases (we) are held to higher standards than mortgage originators at big banks.”
Nationally syndicated columnist Lew Sichelman has been covering the housing market for 35 years. Because of the volume of mail he receives, he cannot answer individual questions, nor can all questions be answered in this space. E-mail email@example.com .
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