The Edmonds, Wash.-based Washington Association of Mortgage Brokers has announced its support of pending legislation that would require mortgage loan officers to be licensed and would expand the state Department of Financial Institutions’ oversight authority over mortgage brokerages.
The proposed legislation, called the Mortgage Brokers Practices Act, cleared the state House of Representative’s finance committee on Jan. 12 by a unanimous vote, and a nearly identical version that was introduced in the Senate is being considered by that chamber’s finance committee, says Adam Stein, WAMB’s president-elect and legislative chairman. If that version clears the Senate finance committee, it will be sent to the House’s appropriations committee, then to the Senate rules committee, and then it will head for floor votes in the House and the Senate, Stein says. Starting in 2007, loan officers could be required to obtain licenses if the bill becomes law, Stein says.
“The lack of oversight over the licensing process and the licensee creates a breeding ground for people who want to practice in an unethical manner,” Stein claims. “This law would be a win for the security of the consumer.”
Mortgage brokers are individuals or companies that act as liaisons between the consumer and the lender in the real estate financing process. Currently, mortgage brokerages must be licensed, but the loan officers who work for such businesses aren’t licensed, Stein says. There are an estimated 8,000 mortgage loan officers working for such brokerages in Washington, he says.
Under the association’s bill, loan officers would have to pass a proficiency test, undergo a criminal background check, and pay a fee of about $100 to get a license to perform their jobs in Washington, he says. They also would have to maintain their skills with continuing education classes.
In addition, the Department of Financial Institutions (DFI) would have five years after a mortgage brokerage goes into business, up from two years currently, to investigate a mortgage broker or brokerage office’s operations. Its increased budget and staffing levels to handle such investigations would be funded through the money received from the licensing fees, he says. Currently, if a consumer complains about a brokerage, that office can be examined after initial time allotted for an investigation has expired, he says.
“In fact, the only way a broker will receive any punitive damages under this act is if he/she is receiving funds and not disclosing this to the borrower,” says a release issued by the WAMB. “That’s called stealing, and it’s time Washington said enough is enough.”
Jeff Berglund, WAMB president and owner of Spokane-based Morgan Mortgage Inc., says he was against the bill at first, because he didn’t want more levels of bureaucracy. He now supports the proposed law, however, because he says he became aware of the need for more consumer protections in an industry that’s fraught with fraudulent activities.
He says a local example would be Century Mortgage Inc., of Spokane, which was the target of a two-year FBI investigation for mortgage fraud. In August 2003, after the investigation was completed, the company’s owners and a handful of other conspirators were charged with selling low-value homes in the Spokane area for inflated prices, and were able to do so partly thanks to fraudulent appraisals.
While DFI already has regulatory authority over mortgage brokers, the new law would expand that authority and give the agency the resources to monitor the activities of brokers more extensively, Berglund says. Oftentimes, corrupt brokers will move to other states, where consumers and authorities are unaware of their past business practices.
Other Western states, such as Idaho, Oregon, and Utah, already require mortgage brokers to be licensed, Stein says. When the state of Ohio adopted similar legislation, background checks revealed that almost 10 percent of practicing loan officers had fraudulent theft-related violations on their records, and it barred them from the profession, he says. After Utah started requiring exams to obtain licenses, 12,000 mortgage loan officers took the test, but only 3,000 passed it, he says. These numbers exemplify two main problems in the industry nationwide, which are corruption and ignorance, he says.
The WAMB has 600 members, spokeswoman Cheryl Isen says. In a poll conducted by the organization recently, 85 percent of its members said they were in favor of the proposed legislation.
