Dennis' Mortgage Blog

Everyone in my industry knows a couple of people that have skirted, or broken, laws in doing loans—some habitually so.  When they get caught, or someone has to do something about it (their manager or broker or the owner of their company) they get fired and just move to another broker or lender.  Get fired from Wamu go to work at Wells Fargo, then BofA, then Countrywide.  There is not tracking or consequences for these individuals.  They rack up a career of bad loans, complaints and foreclosed clients but just keep getting a job somewhere else.  With a national license this practice comes to a screeching halt.

I am one of the first people in line when it comes to states’ rights and keeping the federal government far away from local issues.  Our nation is so large, so diverse with so many regional customs and cultures that many issues and policies should be the purview of the local and state governments.  Policies that make sense in West Virginia make little sense here in Long Beach, and vice-versa.  Across the country our schools, our police forces, our hospitals are adversely impacted by federal legislation and judicial decree because of occurrences in other parts of the country as the legislation and decrees keep adding up and piling on year after year, decade after decade.  Generally I say, “enough, let us fix our problems with our people, our ideas and our taxes.”

For lending legislation however I am all for a Federal mandate and taking much of the power to determine who can and cannot engage in mortgage origination away from the states.  Currently every state has their own licensing requirements, or lack thereof, for individuals and companies wanting to originate and fund mortgages or home loans.  Some states require that you post a bond, some require that you have “bricks and mortar” in the state not just a phone number, some require that you take continuing education, some just require that you pay a fee.  In most states you only need to be licensed if you are brokering mortgages and there is no license required for individuals working for banks, credit unions or direct lenders—California is this way. 

As a mortgage broker I must be licenses as a company by either the Department of Real Estate or the Department of Corporations.  If licensed by the DOC then there is no requirement for individual licenses for each originator.  The loan officer you speak to at Countrywide or Bank of America?  They do not need any licensing to handle your mortgage, just a familiarity of the company products.

As a licensee of the Department of Real Estate our company must have one person with a Broker’s License—that would be me for Stratis Financial—and this individual is responsible for all the activity under the license.  Everyone in the company who originates mortgages must have either a broker’s license or a salesperson’s license from the DRE.  This means that with a DRE broker’s license I can sell real estate and originate and fund mortgages, oh and I can also run an escrow company to handle the transaction.  Not too much of a set up for those with criminal minds is it?  One license can handle the buyer, the seller, the mortgage and the proceeds of the transaction.  And it is not that difficult for anyone to get this license.

Because of the one license for multiple activities in California and most other states you can see which major industry group would be against a national license for mortgage and home loan origination.  The state real estate associations and the national organization would most likely fight like crazy to retain the right in most states to allow their licensees to continue originating and funding mortgages.  Restricting this license from this activity would severely impact their revenues and profits as now the part-time real estate agent whose cousin wants to buy a home could no longer generate the commission on the sale and on the loan to purchase the property—but that is exactly why the licensing laws need to be stricter.

I handle your most important asset: your home.  I am dealing with your life savings, your equity and the most important investment you make.  The shelter for your family is in my control.  And it is very easy to get the license to be in this position.  While there are some national lending rules we must follow, every state has their own and frankly unless we are audited (which by the way we—Stratis Financial—are annually due to our funding of FHA loans) the rules are easy to break.  The threat of the audit is supposed to keep me honest—just like with the IRS.  But the states do not have the finances to audit the hundreds of thousands of mortgage brokers and unless there is criminal charges the Feds do not either.  Therefore it is easy for the bad guys to go from broker to broker, lender to lender with no repercussions. 

One would think that Fannie Mae and Freddie Mac and the major investors and FHA would demand a national license so they can track the bad originators as they move from place to place and prevent them from continuing their criminal and/or unethical practices.  If they want to see a tremendous reduction in fraudulent activity and losses they should demand that Congress and/or the Office of Thrift Supervision or the Department of Housing and Urban Development mandate a national license for mortgage and home loan originators similar to the license that stock brokers and traders must obtain before handling stock trades.  Require a license that requires time and effort to obtain and results in full time, professional and accountable individuals working with families to finance their homes and assist with their debt and equity management.

If states want to require further licensing for mortgage originators so they can continue to collect licensing fees great let them.  But also make sure those individuals have their National Lending License as well.  Enroll Fannie and Freddie in the process to establish a national database and website so consumers can lookup the license of an individual prior to engaging in business with them.  Have an easy process for complaints to be filed by consumers and also by lenders against their own people they have fired or let go for unethical activities.  Put some accountability into the industry that has some consequences.

Until this happens those out there who prey on others, who habitually break the laws and scam people just to make more for themselves will find ways to continue doing so.  My proposal will not get rid of all the bad guys or all the fraud, but it will severely restrict the amount of it and will prevent it from moving from one company to the next to the next…. To those in the industry, think of this as having the same effect IRS form 4506 had on reducing fraud when it was imposed by lenders. 

Dennis

Wednesday February 27, 2008