Prior to 2006, only two states were without licensing laws for mortgage brokers. That soon may change, however, as Colorado and Alaska, citing concerns about mortgage fraud and predatory lending, have introduced legislation to create regulation for mortgage brokers. This while California mortgage broker regulations remain unchanged, despite the efforts of broker associations.
For the past few years, one such group -- the California Association of Mortgage Brokers (CAMB) -- has been working on a bill that would ensure every person who originates a loan could be identified by some type of license or identification number, according to Rob McNelis, past president and state representative for the San Diego chapter of the CAMB.
Currently, someone who works for a bank or financing agency can originate a loan without any identification requirement. Only the bank, agency or principal broker must have a license.
"(Under the current regulations) you could be washing cars yesterday and do loans today," McNelis said, adding that the association's bill would allow the proper agencies to track "bad actors" within the industry.
This bill could be the newest regulation regarding mortgage brokers in the state since the predatory lending law published more than five years ago. But CAMB has received little support as banks and finance agencies would prefer their employees not adhere to regulations of that nature.
Predatory lending, as defined by CAMB, intentionally places consumers in loan products with significantly worse terms and/or higher costs than loans offered to qualified consumers in the region for the primary purpose of enriching the originator with little or no regard for the costs to the consumer.
However, some cities such as Los Angeles and Oakland have disagreed and attempted to enforce their own predatory lending ordinances.
"People want to protect the community. But the way they're writing the majority of these ordinances picks out loan products and not the individual bad actors," McNelis said. He also noted the problem within the mortgage broker industry is not product; instead, it's people taking advantage of one another.
The problem CAMB and servicing companies had with the ordinance passed in 2001 in Oakland was that it was based around stated income loans and allowed borrowers up to two years to determine if they've had a predatory loan. As a result, many lenders refused to loan money within that municipality, which diminished the availability of loan products.
In January 2005, the California Supreme Court nullified Oakland's predatory lending law and a similar one passed in 2003 in Los Angeles. Such laws, the court said, belong with the Legislature.
The Colorado law, similar to the proposed CAMB bill, and a new Washington state law would require mortgage brokers be licensed, not just the principal broker and brokerage, whereas Alaska's law would allow principal mortgage brokers to have unlicensed loan officers working for them.
Both Colorado and Alaska's proposed laws would require brokers to register every three years with the director of each state's division of real estate. Applicants for registration would have to undergo a background check and post a surety bond of $25,000.
In California there are two separate procedures through which a person can become a broker: either through the Department of Corporations Finance Lenders Law (CFL) or the Department of Real Estate (DRE).
When applying for a CFL mortgage broker license, applicants pay $100 for a nonrefundable investigation fee and $200 for the nonrefundable application fee. Applicants must also obtain and maintain a surety bond of $25,000. CFL applicants must provide proof of U.S. citizenship and detailed information of their past, including a prior 10-year residence and work history.
Requirements for obtaining a California Real Estate Broker's License through the DRE include being at least 18 years of age, and being either a U.S. citizen or having proof of alien status. The applicant must take a thorough examination covering all aspects of the real estate business and real estate financing. The examination fee is $50, and college-level statutory courses must be finished before taking the examination.
When applying for the DRE license, the applicant pays a $165 license fee plus a $65 fingerprinting fee. Brokers must have a physical office in California, and any loan officers working in the office must also provide fingerprints and take the approved examination.
Brokers licensed under the DRE may perform regular broker and negotiating business with banks, savings and loans, credit unions, and thrift and loans. Brokers licensed under the Department of Corporations may negotiate loans only with a lender licensed under the CFL.
Predatory lending and mortgage fraud may not be a dilemma within the state, but it is a concern across the nation. According to the Federal Bureau of Investigation, there is a "growing epidemic of mortgage fraud" in the United States, with reported losses from such fraud soaring to more than $1 billion in the fiscal year 2005, up from $429 million in 2004.