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|New laws designed to make it tougher for mortgage brokers and loan officers to be licensed are living up to expectations in at least two states — leading to fewer licensed originators. And mortgage industry consolidation is also having an impact on the number of licensees.Regulators in Ohio and Washington tell MortgageDaily.com that background checks, more stringent requirements and written tests are reducing the number of licenses being handed out.
The laws were passed by legislatures in an effort to reduce mortgage fraud and increase the public’s confidence in the industry.
“The law is giving us the ability to get people out of the business who didn’t deserve to be there in the first place,” Deb Bortner, director of consumer services for the Washington Department of Financial Institutions, told MortgageDaily.com.
Washington’s new law, which went into effect Jan. 1., requires that mortgage loan officers submit to background checks and pass a written test. Applicants must also go through a credit check.
So far the state has received about 13,000 applications, and two-thirds have been given background checks, Bortner said.
“We’ve had 116 referrals for enforcement, meaning our attorneys will review the cases,” she said. “We’ve rejected four or five. Most of the (rejections and referrals) came through criminal background checks.”
At least one license was rejected because the applicant had liens of more than $100,000. The information was uncovered in a credit check, Bortner said. Another had been banned from the insurance industry and will therefore be banned from Washington’s mortgage industry, she said.
Beginning June 5, the department will administer written tests to applicants, a process that will likely weed out more brokers and loan officers.
“We don’t know what kind of failure rate we will have,” Bortner said. “Estimates are that it could be 20 to 25 percent.”
Applicants can take the test up to three times, she said.
In Ohio the number of mortgage loan officers applying for licenses stood at 7,092, down from 8,888 at the beginning of the year, according to the Ohio Commerce Department.
Regulators say the number of renewals are likely down because of Senate Bill 185, which placed “more stringent requirements” on the industry, according to a statement from the state.
Mike Welsh, president of the Ohio Mortgage Brokers Association, said the law has definitely had an impact on the industry.
“Some brokers have gone to other businesses or became originators for bank owned lenders,” Welsh said in an e-mail to MortgageDaily.com.
Regulators said because of the subprime mortgage fallout, some companies are closing or scaling back operations, reducing the need for as many loan officers and brokers.
On the enforcement front, the Texas Attorney General says he has shut down an Austin company that ran a scam targeting Hispanic home buyers.
Attorney General Greg Abbott said in a statement his office received a court injunction against Roberto Flores and Galindo Trust that prevents him and his company from “selling homes to consumers without disclosing that the property is encumbered by pre-existing liens.”
The court also ordered Flores to pay $1.4 million in civil penalties.
According to Abbott, Flores sold homes to buyers without telling them the properties were under liens filed by a hospital. The hospital was unaware of the activity, Abbott said.
The hospital sold the homes to Flores, and did make some mortgage payments through Galindo Trust. But then the payments stopped, putting the homes at risk of foreclosure, Abbott said.
“When some consumers who financed their homes through Galindo Trust tried to sell their property, they were unable to do so because of the (hospital’s) pre-existing liens,” Abbott said.
Georgia — always active in cracking down on the industry, has issued cease and desist orders against for brokers: Kellee Harris of Riverdale; Fred Lee of Duluth; Group AmericUS Business & Entertainment Services, Atlanta; and Wade Cardwell, who was doing business as the Loan Doctor in Rossville.
According to statements from the Georgia Department of Banking and Finance the orders were issued because the brokers were operating with proper licenses or dealing with unlicensed brokers.
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