WASHINGTON — A proposed national registry for loan originators and servicers would complicate already fledgling efforts to modify shaky mortgages.
At least that's the feedback industry representatives are giving federal regulators who released the idea for comment with little fanfare last month.
Including servicers in the registry would "not offer or create any significant consumer protection, and any benefit that might be realized is far outweighed by the costs, including the cost to consumers in terms of delayed modifications that could imperil efforts to prevent foreclosure," Anne C. Canfield, the executive director of the Consumer Mortgage Coalition, which represents servicers, wrote in a July 7 letter to the government.
Under a June proposal by six federal agencies, originators at all banks, thrifts and credit unions would have until early 2010 to be licensed through a registration system first created for nonbank lenders.
The industry's complaints focused largely on whether bank employees who do not originate many loans might end up having to be licensed. Though the agencies asked for comment on narrowing the definition of "originator," the proposal as written would require servicers who complete modifications to comply.
Bankers specifically asked that loan servicers who focus on modifications be exempt from registering. They also requested a simpler way to comply than having every originator register individually and for six additional months to implement the rule.
"The regulation, as proposed, adds unnecessary regulatory burden which will increase the costs to originate a mortgage at a time when credit is already tight," wrote Sherryl McDonald, a senior vice president and the corporate compliance lending group manager for BB&T Corp.
The rule would implement a 2008 law that, while focusing on registration requirements for state-licensed mortgage brokers and other companies, also requires originators at federally regulated institutions to be included in the Nationwide Mortgage Licensing System and Registry.
The registry — intended to increase tracking and accountability of originators and reduce fraud — was first developed in January 2008 by the Conference of State Bank Supervisors and mortgage regulators for states to adopt on an individual basis. Under the rule, originators employed by banks would have to submit and update personal information, as well as provide fingerprints for a background check. An originator would get a unique identification number to keep until retirement.
The proposal drew zero controversy when it was considered by the Federal Deposit Insurance Corp.'s board in late May, but in comments letters filed by the July 9 deadline some bankers said the government is going too far.
"Our employees work hard, both for their bank and their community. They should not be subjected to fingerprinting and FBI criminal background checks," William G. Wheatley, executive vice president at The Peoples Bank in Chestertown, Md., wrote in a July 7 letter. "It is offensive and intrusive to our employees' personal lives and adds an unnecessary additional compliance burden on community banks."
Wheatley said employees at community banks should be exempted from the background checks since they "already have ample regulatory scrutiny on both the state and federal level."
Commenters also objected to the exemptions the agencies actually allowed.
The proposal would exempt employees who made five or fewer loans in a year, but only at institutions where loans made by such employees did not exceed 25. Many said 25 loans was an unrealistically low number.
Robert Davis, the American Bankers Association's executive vice president for government relations, said the regulators should simply remove the 25-loan ceiling.
The "dual-pronged test is fundamentally inconsistent with the underlying premise of the statute and narrows the exception in a way that renders it worthless to most banking institutions," Davis wrote in the trade group's July 9 letter.
Some observers said institutions should not have to submit to requirements that banks already follow.
"BB&T recommends the FDIC allow institutions that currently conduct criminal background checks on its employees to rely on these checks without requiring an additional check for those involved in the mortgage origination process," McDonald said.
Many commenters also urged the regulators to expand an institution's ability to use bulk processing to allow a bank to submit all of its originators' information at once.
The agencies had said in the proposal they were considering modifying the rule to permit "batch" processing.
"The regulatory agencies should do everything possible to minimize the compliance burden on the banking industry," Jon K. Skarin, the director of federal regulatory and legislative policy for the Massachusetts Bankers Association, wrote in a July 9 letter.
"We recommend that the agencies … should work to develop a standardized form that could be adapted for all banks. This would allow batch processing, while ensuring that all relevant information was provided to the registry."
In addition to the FDIC, the agencies working on this registry are the Federal Reserve Board, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration and the Farm Credit Administration.
