National Broker Licensing on the Table

The Mortgage Bankers Association suggested that U.S. representatives make some adjustments and move forward the Title V of H.R. 1295, The Responsible Lending Act of 2005, as a means to lessen the burdens created by multiple state licensing laws for both brokers and bankers, according to the prepared testimony given before the Subcommittee on Housing and Community Opportunity Committee on Financial Services.

Title V would give states three years to pass uniform statutes for licensing mortgage brokers, create federal mortgage broker requirements for states that do not pass compliant legislation, and establish a national database of licensed mortgage brokers, MBA said.

“MBA supports Title V because we believe it will elevate the standard of professionalism within the mortgage broker industry,” said Teresa Bryce, co-chair of MBA State Licensing Task Force, in the written testimony. “Title V will also result in greater accountability among mortgage brokers while at the same time easing the compliance problems caused by different state laws for mortgage brokers who broker in multiple states.”

Despite that brokers state they are involved in nearly 70% of residential mortgage loans originated, they are not regulated at the federal level and it is only recently that the majority of states begun to require licensing, Bryce said.

On the other hand, states have typically licensed mortgage-lending companies to monitor the industry’s activities within the state, and some have begun adding requirements onto their laws that go beyond corporate licensing, such as requiring individual loan officers and support staff be licensed, she added.

Recently adopted laws with such requisites, include California’s law requiring new lenders to submit a set of fingerprints for background checks in order to receive a license — a law inspired by a mortgage broker accused of fraud; Wisconsin legislation requiring new loan originators to pass a competency test and criminal background check prior to licensing; and Maryland’s law effective at the beginning of this month requiring that mortgage broker loan officers, and in some cases mortgage lender loan officers, become licensed.

Bryce added that mortgage bankers, unlike brokers, are often subject to several levels of oversight from federal and state organizations.

Because mortgage bankers have capital at risk that extends beyond the funding of the loan while brokers’ responsibilities typically end when a loan closes and they receive their commission, brokers should have a different regulatory regime but a uniform standard, Bryce indicated.

The “current licensing environment for mortgage bankers at the state level and the difficulties it is imposing on them” bring “lessons to be learned from the state level experience as this subcommittee considers Title V,” Bryce said.

Bryce recommended Congress elaborate on some sections of the bill to avoid brokers from exempting out of licensing, such as making it clear that by “makes, services, buys, or sells mortgage loans;” the statute clearly exempts those firms that fund the loan but includes all mortgage brokers.

Bryce also commented in the testimony that although Title V would elevate and standardize broker licensing across states by setting a uniform, minimum requirement, it does not prevent states from continuing to pass laws requiring the licensing of individual loan officers of mortgage banking companies. Thus, “the subset of the mortgage banking industry that is subject to these laws must continue to operate in an uneven competitive field that is increasingly uneven,” she said.

The MBA said it “encourages the Committee to further study possible federal initiatives that will assist mortgage bankers as we deal with state level corporate licensing laws that are increasingly duplicative and burdensome.”