California Mortgage Brokers: License All Originators, Don’t Restrict Nontradtional Home Loans
While many in the real estate industry would like to see further education on nontradional mortgages, a trade group in California has another idea for protecting consumers against these kinds of risks:
License ALL loan originators. Don’t place new restrictions on the loans themselves.
In a report released Thursday, the California Association of Mortgage Brokers argued that so-called “exotic” loans such as pay-option and interest-only mortgages are a useful tool for home buyers who might otherwise be priced out of the market. The loans have come under increased scrutiny from regulators and consumer groups because of their potential to default if interest rates rise or home prices don’t appreciate.
Instead of passing new restrictions on the use of the loans themselves, however, this group of mortgage brokers is urging California lawmakers to close loopholes that allow loan originators who are not licensed to pitch such products to consumers without licenses or criminal background checks.
Califorina mortgage broker licensing: Although approximately 485,000 mortgage brokers are licensed through the state Department of Real Estate, loan officers who originate loans for banks and investment firms work under the umbrella of about 115,000 licenses granted to their parent companies by the state Department of Corporations, the report said.
There may be as many as 1.2 million people originating home loans in California, the CAMB report said, but there is no way of knowing because only mortgage brokers are required to obtain individual licenses.
Corporations “can hire a loan originator right off the street and have them originating loans that day without any education, licensing or individual accountability,” the report said.
A spokesman for the CAMB, Dustin Hobbs, said that while bank loan officers aren’t individually licensed, the California Department of Corporations maintains strict oversight of their employers’ operations. Banks have a vested interest in employing well trained and ethical loan officers because they stand to lose money if the loans they approve don’t perform.
“The suggestion that a mortgage bank could just take somebody off the street is just ridiculous,” Hobbs said. “It would be the same as American Airlines taking someone that has two hours of flight training and making them a pilot.”
The CAMB report argues that the use of unlicensed loan originators by Ameriquest Mortgage Co. - which in January agreed to a $325 million nationwide settlement stemming from allegations that its employees deceived borrowers and falsified loan documents - is an argument in favor of individual licensing.
Stepped up consumer education and enforcement of existing laws by state and federal officials is also needed, the group said.
“We can do what’s right for consumers until we are blue in the face, but it’s not going to do any good unless the bad guys are stopped, ” said CAMB board member Ed Smith Jr.
The call for mortgage broker state licensing of all loan originators comes at a time when consumer groups and regulators are urging lawmakers to place more restriction on the use of nontraditional mortgages.
Bankers have complained that the guidelines will create an uneven playing field in the mortgage lending business because they apply only to federally insured banks and not to state-licensed banks or other lenders.
Nontraditional loans constituted about 30 percent of all mortgages nationwide in 2005, up from 2 percent in 2000, U.S. Comptroller of the Currency John C. Dugan said in his Oct. 17 address in San Diego to the trade group America’s Community Bankers.Although the CAMB report does not address the issue of the federal guidelines directly, the group is opposed to restrictions on nontraditional mortgages.
“CAMB strongly believes that focusing on the actions and integrity of individual loan originators and not loan products is the best solution to curbing abusive lending practices and increasing consumer protection,” the report said.