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Sweeping Reforms: What They Mean for the Mortgage Industry

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RISMEDIA, April 7, 2008-The US Treasury Department released its Blueprint for reforming the way that financial institutions are regulated in the United States. “This is the most sweeping proposal for restructuring the financial regulatory environment since the Great Depression,” said Gibran Nicholas, Chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers. “Instead of patching up a structure that in many ways is nearly 100 years old, the Treasury is proposing to start from scratch and modernize the whole system,” Nicholas said.

“This is the most effective, comprehensive, and well-reasoned proposal we’ve seen from the government since the mortgage, housing, and credit crisis began nearly 9 months ago.”

Here is a summary of how the proposal will affect the mortgage process:

- The Federal Reserve should continue writing regulations and national mortgage lending laws under the authority granted them by the Truth in Lending Act. One example of such regulation is the new rules that were proposed by the Fed in January 2008. Among other items, the Fed proposed that creditors be required to verify income and assets when underwriting subprime mortgages and that mortgage brokers be prohibited from earning a commission that is higher than the original commission rate they agree upon with a consumer prior to the consumer applying for a mortgage or paying any fees.
- A new federal Mortgage Origination Commission (MOC) should be created to evaluate, rate and report the adequacy of each state’s licensing and regulation of the mortgage origination process. Many states don’t have any mortgage licensing laws at all, and the states that do have licensing rules often have inadequate standards that fail to protect consumers. The Blueprint calls for the federal government to ensure that each state:

- Reports and grades the personal conduct and disciplinary history of each licensed mortgage salesperson
- Requires minimum educational requirements for mortgage salespeople
- Establishes testing criteria and procedures for mortgage salespeople
- Implements license revocation standards for mortgage salespeople who violate the rules

One major disappointment in the Blueprint was that mortgage salespeople who work for federally chartered banks would not be subject to the same licensing rules as the rest of the industry. “Although federally chartered banks have their own guidelines that need to be followed, all individuals who sell mortgages to consumers should be required to follow the same guidelines,” said Nicholas.

For more information, visit www.CMPSInstitute.org or call 888.608.9800.

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