Mortgage Lenders Quietly Adjust To Stricter Oversight

The Record ( — Thursday, May 6, 2010

The Record

As Congress debates sweeping financial reforms to prevent a repeat of the 2008 housing meltdown, mortgage lenders who do not work for banks are already quietly adapting to stricter oversight.

Wendy Nastasi, a licensed mortgage lender in New Jersey for nearly 10 years, said that in March she had to take a 20-hour class on mortgage-lending laws. Since then, she has passed a new state licensing test for mortgage bankers and submitted to fingerprinting and criminal background checks by both the FBI and state police.

Eight loan officers who work for her company, Crossroads Finance Discount Mortgage in Pequannock, paid about $1,000 each in recent months to take classes, get tested, fingerprinted and have criminal background checks done — all new requirements.

In the past, loan officers who worked for brokers and mortgage bankers did not need a license at all, but only had to be registered with the state Department of Banking and Insurance, which required only a $100 annual fee.

The mortgage lender licensing push is required under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), part of the Housing and Economic Recovery Act of 2008, enacted in response to the subprime mortgage market meltdown to provide more consumer protection and reduce fraud.

The law required states to enact their own licensing laws and enforcement procedures based on the federal government's minimum standards.

Those who work for national banks are exempt from most of the requirements.

In New Jersey, loan originators have until May 15 to meet the new conditions.

Nastasi said the process has been time-consuming and expensive, but she is not complaining. "Although it's painful, it's such a good thing to be happening to our business," she said.

"There were a lot of people who shouldn't be working in this industry, and they will be gone."

Her information and that of her sales staff — including fingerprints — has been added to a new national database that keeps tabs on mortgage originators all over the country.

Once the website is operational, consumers will be able to go online and see their brokers' and their sales agents' employment histories and records of disciplinary and enforcement actions, if any.

The number of registered mortgage solicitors in New Jersey, also called loan officers, plummeted to 13,456 as of the end of March from a recent peak of 43,775 just before the July 31, 2007, registration renewal date, as the collapse of the subprime market, the long housing slump and new licensing requirements have driven thousands out of the business.

"The loan originator has accountability they never had previously," said E. Robert Levy, executive director of the New Jersey Mortgage Bankers Association, which supported most of the new requirements.

The national database is a key feature, he said. "If you get a license revoked in one state, you can't get licensed in another state." Levy said.

During the subprime lending boom, rogue loan officers working for brokers, mortgage bankers and home-loan subsidiaries of large banks, operated with little regulatory oversight, and consumer advocates say they used predatory tactics to make loans people could not pay back and sometimes resorted to fraud, falsifying loan applications and encouraging applicants to lie about their income to close deals and reap handsome commissions.

"This is a good step. It will certainly weed out some of the bad players," said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, a consumer watchdog.

"Hopefully there will a lot of tools in the tool chest, including a strong consumer protection agency that will cover all lenders, not just banks," she said.

More oversight

Until this year, New Jersey mortgage loan originators — loan processors, salespeople and underwriters — did not need a license. The federal Secure and Fair Enforcement for Mortgage Licensing Act, enacted in response to the subprime market crash in 2008, required states to set licensing standards. In New Jersey, loan originators must do the following by May 15 to get licensed by July 31:

Source: New Jersey Department of Banking and Insurance

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