A Democratic Senator and a former Bush administration Republican have come together to propose federal licensing for mortgage brokers and lenders.
U.S. Sen. Dianne Feinstein (D-Calif.) and Sen. Mel Martinez (R-Fla) announced today their introduction of the Secure and Fair Enforcement in Mortgage Licensing Act, also dubbed the SAFE Mortgage Licensing Act. The proposed legislation is similar to H.R. 3012 already introduced in the House.
As submitted, the bill would impose a federal licensing registry and establish federal licensing standards for mortgage brokers and mortgage lenders. It would also enable prospective borrowers to verify an originator's credentials.
Feinstein said no current national standards exist, only a patchwork of state regulations.
"This legislation would reverse that," she said. "It would ensure that every mortgage broker and lender in the United States is trained, licensed, and has no record of impropriety."
Residential originators employed by brokers, non-bank lenders and banks would be required to obtain a state license, submit fingerprints and consent to a background check.
Applicants for a license would first be required to complete 20 hours of education including three hours on federal laws, four hours on ethics and two hours on subprime mortgages. In addition, they would need to pass a 100-question written exam with a score of at least 75 percent.
Only originators with a record of financial responsibility, no felony convictions and no prior mortgage license revocations could obtain a license.
State regulators would be required to develop a satisfactory licensing system within one year of enacting the federal legislation or else HUD could step in to develop a national registry and license.
"There's not enough coordination between state regulators to prevent unscrupulous mortgage originators from continuing to ensnare unsuspecting people in subprime predatory loans," stated Martinez, former Secretary for the U.S. Department of Housing and Urban Development under President Bush. "This sets up a nationwide system to keep track of those who've violated the law, had their license revoked, or failed to fulfill appropriate educational requirements."
The senators noted their states, California and Florida, were hit especially hard by a rash of foreclosures last year.