Congress moves closer to licensing mortgage brokers

WASHINGTON, D.C.
May 21, 2008 12:01am

The Senate Banking, Housing and Urban Affairs Committee has approved legislation by U.S. Sens. Dianne Feinstein, D-Calif., and Mel Martinez, R-Fla., to establish minimum national licensing and oversight standards for America’s mortgage brokers and lenders.

The bill (S. 2595) is designed to ensure that all mortgage professionals are trained in federal lending laws, ethics, consumer protection, and the sub-prime mortgage marketplace, according to Ms. Feinstein’s office. It would also create a national database for consumers to use to verify the credentials of their brokers and lenders.

The legislation was included in landmark housing reform and foreclosure prevention legislation approved by the committee.

“No state has been hit as hard as California. Last year there were nearly 500,000 foreclosures in California, and another 500,000 California homes will be at risk as adjustable-rate mortgages reset in the next couple of years,” says Ms. Feinstein.

“And we know that today the rules governing mortgage brokers and lenders are inadequate,” she says. “There is just a thin patchwork of regulation that varies from state to state. This legislation will create basic minimum standards for states to utilize to protect consumers.

Mr. Martinez says the legislation would help prevent another mortgage meltdown.

“The lack of coordination between regulators exposes consumers to predatory loan originators,” he says. “A nationwide system to keep track of those who’ve violated the law, had their license revoked, or failed to fulfill appropriate requirements will benefit families and the marketplace.”

Highlights of the legislation:

• Would require that residential mortgage loan brokers and lenders obtain a state license, and provide fingerprints, a summary of work experience, and consent for a background check to authorities.

To obtain licensing an individual must:

• Have no felony convictions;

• Have no similar license revoked;

• Demonstrate a record of financial responsibility;

• Meet a minimum net worth or bonding requirement;

• Fulfill education requirements (20 hours of approved courses, to include at least 3 hours related to federal laws, 4 hours on ethics and consumer protection in mortgage lending, and 2 hours on the sub-prime mortgage marketplace); and

• Pass a written exam (minimum score of 75 percent required to pass).

The bill would also require the Federal Reserve, Treasury Department, and FDIC to register all residential mortgage loan originators employed by national banks within one year of legislation’s enactment.

And it would require state regulators to develop a satisfactory licensing system within one year of legislation’s enactment. If this does not occur, the Housing and Urban Development Secretary is given discretion to develop the national registry and license, generating revenue for its implementation by charging fees to license applicants.