Court this week to put last piece in mortgage licensing puzzle
By Jacquelyn Weiner
Depending on who you talk to, recent government regulation of the mortgage industry is either adding important protections for homebuyers or tamping out lenders' business.
The majority of requirements under 2008's Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act, which aims to protect consumers by regulating lending and who can handle mortgages, are now in place.
Still in limbo: a restriction on loan-originator compensation, which was to take effect April 1. The US Court of Appeals granted an emergency motion last week temporarily blocking its enforcement, scheduling a hearing on the issue for this week.
Since Florida's regulations took effect in 2010, the pool of lenders statewide has been nearly halved, said Flora Beal, communications director for the state's Office of Financial Regulation.
At "the height of the industry" in August 2007, some 82,000 mortgage brokers applied for a license through the state's Office of Financial Regulation, Ms. Beal said.
Since the transition to the new regulations, she said, the number of licensed mortgage brokers has reduced to about 42,000.
And as of the end of March, just over 15,800 licenses had been renewed, she said.
Mortgage professionals were required to re-apply under the Nationwide Mortgage Licensing System by Dec. 31, 2010, to continue working without waiting for their application to be approved, according to the Office of Financial Regulation's website. Those that apply later may have to wait up to three months for approval.
This ramped-up enforcement of mortgage practices was required under the federal Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act, a section of the Housing and Economic Recovery Act passed in July 2008.
Florida was to enforce its regulations in stages through October 2010. They are more sweeping than those required nationally.
Among major changes: requiring all license applications to be submitted through a national database - the Nationwide Mortgage Licensing System and Registry - credit and background checks for all applicants and requiring annual renewal versus biennial renewal.
The changes aim to protect consumers by requiring more information from licensees.
The in-contention regulation on compensation for lenders is intended to curb the practice of giving mortgage originators financial incentives to issue mortgages with higher interest rates.
Since the stricter standards on licensing have taken effect, most of the unethical practices have been weeded out, said Claudine Claus, president and CEO of Home Financing Center.
Ms. Claus is also president of the Mortgage Bankers Association of South Florida.
Before industry regulation began, Ms. Claus said, it was "embarrassing" to be lumped in with the mortgage banking industry's sullied reputation.
"It wasn't a professional industry anymore," she said.
Most of those who were giving the industry a bad name have been weeded out through the credit and background checks now required under the national database.
"Before, people could commit crimes in one state and start up again," Ms. Claus said. "This way, there's a national registry, so that's not going to be something that they can do."
Among past problems: Ms. Claus said she used to field inquiries from clients asking if one of her lenders had called them to discuss refinancing their home at extremely low interest rates.
It turned out that the callers were not in fact from her company, but had looked up clients through public records and were impersonating lenders.
That's no longer happening, she said.
Still, Ms. Claus said, there's room for improvement. And that burden, she said, must fall on the consumer.
"Borrowers need to be concerned with who they're getting their mortgage from," she said. "There's only so much that I think [the government is] going to be able to regulate."
But other mortgage professionals say the increased government regulation is killing the industry.
"The SAFE Act was really enacted to kind of regulate the industry as a whole," said Anthony Modrono, a branch manger for Universal Mortgage & Finance and president-elect of the Florida Association of Mortgage Professionals Miami Chapter. "Basically, what's happened is that they overregulated it."
A major concern, he said, are the credit checks now required.
The credit reports are "eliminating a lot of people who are ethical from being employed in the industry," he said. "So in that sense, it's not doing its job."
Similarly damaging is the proposed compensation regulation, he said.
Capping origination fees and requiring a $1 million net worth for licensing would make it nearly impossible for small mortgage-broker operations to do business, he said.
"Those shops will virtually cease to exist," Mr. Modrono said. "There's just no way they can make it."
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