The California Association of Mortgage Brokers is lobbying state lawmakers to sponsor legislation to subject loan officers at banks and other lenders to the same licensing requirements, including criminal background checks, as its members.
Uniform licensing would improve consumer protection and help eradicate "abusive lending practices," the trade group, which has more than 400,000 members, argued in a 13-page report released last month.
Michael Faust, the group's government affairs chairman, said the proposal grew out of discussions among brokers and bankers about the relationship between such practices and nontraditional mortgage products.
"Mortgage brokers and loan officers should all be held to the same standards," he said. "We think there should be some barriers to entry besides the capacity to simply fill out a job application."
California has a complicated structure for licensing loan originators, with three different agencies overseeing various licenses.
Independent mortgage brokers are licensed by the California Department of Real Estate. They must take a college real estate course, pass a state-administered real estate exam, and undergo a criminal background check before getting a license.
By comparison, there are 600,000 to 1 million loan officers in California who work for banks and lenders and use their companies' corporate licenses with the state Department of Corporations. The department issues two types of licenses - the Consolidated Finance Lenders license and the Residential Mortgage Lenders license - that let companies lend directly to consumers.
Many banks, credit unions, and other financial institutions also receive licenses through the state Department of Financial Institutions.
Dustin Hobbs, a spokesman for the California Mortgage Bankers Association, which represents roughly 115,000 mortgage bankers, said his group believes consumers get better protection from the Department of Corporations than they do from the Department of Real Estate.
"If a broker perpetrates fraud on a consumer, they can skip town and there is nothing - no assets - to go after," Mr. Hobbs said. "The problem as we see it is the DOC license has better oversight, while the Department of Real Estate is really complaint-based."
Employees of banks and lenders receive training before they can set up loans for homeowners, he said, and banks and lenders must meet certain minimum capital requirements and undergo state audits.
Mr. Faust said consumers need assurances that employees working for banks and lenders receive pre-education and continuing education to maintain their licenses.
Also, current disclosures such as good-faith estimates and Truth-in-Lending forms, which must be provided to consumers within three days after they fill out a mortgage application, are adequate only for 30-year fixed-rate loans, he said.
"The disclosures consumers are given are just not relevant for the modern mortgage market," Mr. Faust said.
The number of people with real estate licenses in California has risen 64% in the past five years, to 511,000 as of June 30, according to the brokers group.
