New oversight system is likely for mortgage workers

WASHINGTON - Should your mortgage loan officer have fingerprints on file in a national electronic database, even if he or she has never been convicted of a crime?

Should you be able to go to a Web site to check out your lender or mortgage broker's professional file - including employment history and disciplinary actions - before signing up for your next home loan?

The answer to both questions could be yes if far-reaching housing and mortgage legislation is approved by Congress and goes to the president later this month. It would create a vast new, mandatory licensing and registration system covering anyone who originates home mortgages, whether an independent broker, a bank employee, mortgage company loan officer or even a realty agent who gets money from a lender for helping buyers with loan applications.

The idea, say proponents, is to require more stringent professional standards at the front lines of the mortgage industry - tougher educational and competency tests, annual recertifications and a national tracking system based on fingerprints and other "unique identifiers."

These new standards, in turn, could help eliminate two of the key problems that led to widespread fraud and predatory lending abuses during the housing boom years of 2002-06.

Minimal barriers for entry into the industry. Thousands of workers left jobs in other fields - from driving trucks to landscaping - to make big money in the mortgage business. Since professional education and financial standards were low in many states, it was quick and easy to make the switch.

Inadequate regulatory oversight and coordination at the federal and state levels. When loan officers created fraudulent or toxic loan transactions, pocketed the fees and ran, it was easy for them to find work in another state or at another company since there was virtually no mechanism to track scammers.

Under the legislation, the rules would change drastically. Loan originators not employed by federally chartered banks or credit unions would have to be certified under a new Nationwide Mortgage Licensing System and Registry maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators.

Besides fingerprinting submissions to the FBI for background screening, license applicants would be required to produce current credit reports and detailed personal employment histories. Applicants convicted of a felony during the prior seven years would be rejected. Persons convicted of serious financial crimes such as money laundering would be banned for life.

Applicants would also have to submit evidence demonstrating their "financial responsibility" and would have to pass written tests following at least 20 hours of professional education courses. To qualify for annual renewals of their licenses, they would also have to certify at least eight hours of continuing education training during the previous year.

Employees of nationally chartered banks and credit unions who originate loans would have to meet similar standards, but under programs run by federal financial regulators rather than states. They would also have to submit fingerprints and be assigned "unique identifier" codes that would follow them from job to job.

Though most lending industry groups support the concept of a national licensing system and personnel database, some are unhappy about the potential costs and added bureaucracy involved.

"This is going to be very cumbersome, very expensive and time-consuming" to deal with, said Anne Canfield, executive director of the Consumer Mortgage Coalition, a Washington-based trade association of large national banks and mortgage subsidiaries.

Major lenders already have extensive professional training programs in place for their retail loan officers, said Canfield. "A lot of this is going to be duplicative and unnecessary" for mortgage employees of the biggest banks.

The National Association of Mortgage Brokers says it welcomes uniform standards covering all originators in all states.

Marc Savitt, president of the brokers group, called the legislation "a major step forward for the entire industry and for consumers."

But what about mandatory fingerprinting? Lending trade groups have not complained, but a politically diverse coalition of advocacy organizations - ranging from the American Civil Liberties Union to the American Conservative Union - wants the Senate to strip the fingerprinting requirement on financial privacy grounds.

Bill Matthews, president of the State Regulatory Registry LLC, a subsidiary of the Conference of State Bank Supervisors, said fingerprinting should not be an issue. Not only are stockbrokers fingerprinted and subject to FBI background checks, but a number of states already have similar requirements for mortgage originators, with no data security lapses.

Bottom line: Coming off the fraud and foreclosure scandals of the boom years, a national registration and oversight system for the mortgage lending industry appears highly likely, and could be up and running within the coming year.

Write to Ken Harney at P.O. Box 15281, Chevy Chase, MD 20815, or via e-mail at kenharney@earthlink.net.

ˆ© 2008, Washington Post Writers Group