WASHINGTON — While housing legislation moving through Congress focuses on helping borrowers avoid foreclosure, it also would reform a corner of the mortgage market: broker licensing.
The Senate version, which passed the banking committee last week, would set a national standard, but also would let states impose tougher requirements.
Banking lobbyists are scrambling to soften the provision, which also would require originators to act in a borrower's best interest.
"We are concerned about the language because it is so vague that it is very unclear how anyone could comply, and that of course poses litigation risk," said Floyd Stoner, the head lobbyist for the American Bankers Association. "We remain concerned about the provision because we need to protect a clear national standard."
The House sets such a standard in a separate bill designed to end predatory lending.
The Senate bill was kept under unusually tight wraps, and when it was finally released lobbyists had little time to digest its nearly 400 pages. Most of them focused on the bill's main provisions — using the Federal Housing Administration to stem foreclosures and strengthening oversight of the government-sponsored enterprises.
The provision on mortgage brokers and originators, written by Sen. Mel Martinez, R-Fla., was included only on the eve of the May 20 vote after committee leaders had hashed out a deal.
The Office of the Comptroller of the Currency, a staunch defender of federal preemption powers, suggested some tweaks in the Martinez language that were not incorporated in the final text.
In interviews on Tuesday and Thursday last week, Sen. Martinez said he saw no need to relax the standard.
"I would hope it doesn't change," he said. "This ought to set a minimal standard … . Already many states regulate mortgage brokers so if they are regulated on a higher level I don't want this bill to then provide a lower level of regulation."
Democrats control both the Senate and House and will have a larger say when the two bills are reconciled. Most sources do not expect them to make it more palatable to the banking industry by weakening a measure offered by a Republican.
Under the Martinez provision, employees of national banks and federal thrifts who originate mortgages would be required to undergo background checks and be registered with their regulator. Any independent broker or mortgage originator who was the employee of a state-chartered finance company, including those owned by a bank or thrift holding company, would be required to be independently licensed by the Department of Housing and Urban Development and would need to be licensed in each state where he did business.
The licensing standards would include the background check and completing 20 hours of prelicensing education. Eight hours of nonrepetitive continuing education would be required each year, and brokers would need at least a 75% score on the exam, among other requirements.
The legislation clearly notes, "Nothing in this title may be construed to preempt the law of any state, to the extent that such state law provides greater protection to consumers than is provided under this title."
The nationwide mortgage licensing system and registry, to be administered by the Conference of State Bank Supervisors, is meant to weed out fraudsters. But in a belt-and-suspenders move, the Senate bill would also impose a suitability standard.
The bill says it "establishes a means by which residential mortgage loan originators would, to the greatest extent possible, be required to act in the best interests of the consumer."
