In the past few years, untrained workers have swarmed into the mortgage business.
There has also been an outcry among bankers and law enforcement officials that mortgage fraud is on the rise and that criminals are devising more sophisticated schemes.
Meanwhile, mortgage brokers, a group often accused of predatory practices, have been advocating licensing laws across the country in an effort to reassure the public that they are not the primary offenders.
Idaho’s top financial regulator has a proposal that he says will address all these issues: a national registry of mortgage brokers and loan officers.
It would be modeled after a registry managed by the National Association of Securities Dealers that monitors customer complaints, settlements, arbitrations, and actions taken by all securities regulators.
“It seemed like it was natural to create a similar database for the mortgage industry,” said Gavin Gee, the director of the Idaho Department of Finance.
Such a database would make “licensing and tracking individuals for enforcement actions much easier,” Mr. Gee said. It would help regulators — and potentially lenders and even the public — “keep track of the fraudsters who would jump states and move across the country.”
He estimates the cost of development would be “in the millions.” It has not been decided how to pay for it, but some upkeep would be paid for with licensing fees.
Naturally, there are skeptics. Some lenders say the cost to them would be prohibitive — particularly if, as a few lenders fear, back-office workers had to be registered along with salespeople.
Even one of Mr. Gee’s counterparts says the registry is unnecessary because regulators already have tools to enforce the law.
“I don’t think I’m having trouble finding our Joe Smiths now,” said Chuck Cross, the director of the Washington Department of Financial Institutions’ consumer services division.
“We have databases to find people,” Mr. Cross said. “We use things like LexisNexis, we have access to the [state’s] department of licensing, the National White Collar Crime Center.”
So many state regulators agree with Mr. Gee, however, that their trade group, the Conference of State Banking Supervisors, has put him in charge of a special committee to explore a national database.
Montrice Yakimov, a senior vice president with the trade group, said that not all members have the same tools to do background checks. In an e-mail, she said the group wants “to augment the overall quality of the supervision of licensed mortgage lenders nationwide.”
Mr. Gee said the key to selling the idea is demonstrating that the proposed database would make the industry more efficient, much like the NASD registry has done for the securities business.
To achieve this goal, he is intent on also creating a uniform licensing application standard for originators across the country, like the forms used with the NASD registry.
“Basically you would have a one-stop filing,” Mr. Gee said. “You can file in one location” for as many state licenses as are necessary, using a common form, “rather than filing with each and every state,” and get an “instantaneous,” online approval.
“This has sped up the approval process tremendously” in the securities industry, he said. He is familiar with the NASD database because he regulates all financial services businesses in Idaho.
As the chairman of the trade group’s special committee, Mr. Gee is spearheading the movement to create a mortgage originator database and uniform license application.
According to John Ryan, the executive vice president of the Washington trade group, it wants to beta test its application form with 16 states as early as January. The group has talked with three or four mortgage industry technology vendors about creating the registry.
“We’re going to be asking them for more solid proposals and are in the discussion phase with dollar” amounts, Mr. Ryan said.
Mr. Gee said the registry would probably be owned by state regulators through the trade group. Ms. Yakimov said that the group is “exploring outsourcing options” including working with a vendor that would handle day-to-day management of the registry.
The idea of a national database is nothing new — it has been bandied about for years, many sources said. Mr. Ryan said state banking regulators are uniquely capable of making it happen because “it’s the states who license brokers and lenders. Only we can create efficiency in the licensing system.”
The idea has the support of a number of parties, among them the National Association of Mortgage Brokers.
Bob Armbruster, the broker group’s president, said that “anyone who originates a loan should be licensed somehow — anyone who has responsibility and is compensated directly for loan origination,” including mortgage brokers.
At the same time, “we need some sort of standard” for licensing originators, Mr. Armbruster said. Otherwise, getting licensed on a state-by-state basis becomes a “maze,” he said, echoing what many lenders have said in opposing state anti-predator laws: that they create a burden because they are all different.
Regulators’ experiences at the state level suggest that building a national registry will not be easy, or cheap.
In North Carolina, an expanded licensing law went into effect in 2001. Since then the state banking commission went from licensing 1,300 state mortgage banks and brokerages to licensing about 13,000 individuals and 1,400 companies, said Will Langston, the agency’s senior mortgage examiner.
Mr. Langston said that though the process has “gone quite well,” his tiny office has had to more than double its staff and is using licensing fees to pay for its license database.
George King, the director of the North Carolina Banking Commission’s mortgage division, said that his office had originally tried to license back-office employees at mortgage banks as well as loan originators.
But it was having enough of a struggle “getting our arms around loan originators” and so decided to let the processors, marketers, and telemarketers go.
There is still some confusion in certain states about who is covered by licensing laws. Some lenders have raised a ruckus in Tennessee, claiming that the state’s licensing law, which will go into effect Jan. 1, defines loan originators so broadly as to include back-office workers.
This is something the commissioner of Tennessee’s department of financial institutions, Kevin P. Lavender, emphatically denies. “Clerical” workers who are not selling loans will not have to get licenses, he insisted.
Russ Cross, a vice president with Wells Fargo Financial Inc., the Des Moines consumer finance unit of Wells Fargo & Co., called the idea of uniform licensing standards “certainly worthy of consideration.”
“Hopefully, increased uniformity would result in efficiencies for regulators and lenders and would help ensure parity among mortgage loan providers,” he wrote in reply to American Banker’s questions.
But Mr. Cross would not discuss the registry proposal. He is taking part in a Conference of State Banking Supervisors residential mortgage regulatory task force that is to meet in December.
An executive with a major nationwide nonbank lender agreed that a uniform licensing standard was a good idea.
“We’ve got a national business, seamlessly across 50 states,” said the executive, who requested anonymity. “Yet we have state regulators who don’t care about what other states do. This structure is doomed to inefficiency. The financial services industry is collectively just becoming aware that this is an issue that has gotten out of control.”
But this same executive strongly opposed the idea of including loan officers in a registry.
“Theoretically we have 2,000 people who would need to be registered,” he said. “At $100 a pop, that’s $200,000 a year to register everybody’s name. That makes no sense.”
Ms. Yakimov of the regulators’ trade group said that membership in the registry would be tied to each state’s licensing laws. Loan officers in a state that did not require them to be licensed would not have to take part in the registry, she said.
Scott Cooley, a consultant in Los Gatos, Calif., wrote in an e-mail that “it would be great to license every originator. It would make the industry more professional and ensure a higher level of legal compliance. It would be more of a burden, but I think it would be worth it.”
Currently, Mr. Cooley added, law enforcement officials “simply don’t dedicate the resources needed in the mortgage industry to even begin to be a threat to the bad apples. The threat of losing your national license would be a large deterrent to them to continue their practices.”
The industry might be open “to a fee that must be paid by each new originator,” he said.
