Tougher regulations for loan officers meant to fight fraud
Mortgage loan officers face new state licensing requirements in 2009.
While mortgage brokers, lenders and servicers already are registered, loan officers or originators have not been, allowing entry for unscrupulous operators who act illegally and may even have criminal backgrounds, said Pava Leyrer, owner of Heritage National Mortgage Corp. in Grandville and past president of the Michigan Mortgage Brokers Association.
Background checks and continuing education are two of the components of the new law, which comes amid a foreclosure and housing crisis in the state. The original law, passed in early 2008 and signed by Gov. Jennifer Granholm in April, was to go into effect Jan. 1. But Leyrer, who chairs the MMBA’s government affairs committee, said some minor changes to the law may delay implementation until April.
Some of the changes would bring in a national loan officers licensing law set to hit the books July 1, and others pertain to criminal background checks. Leyrer said she’s hopeful the Legislature will address the changes prior to year’s end.
No one knows how many loan officers there are in Michigan, said Jason Moon, spokesman for the state Office of Financial and Insurance Regulation. “It’s estimated there’s 20,000 loan officers. It could be 10,000; it could be 15,000,” he said. Not until the licensing is done will there be a better clue of their numbers.
Moon said the OFIR commissioner prohibited 49 people from working the mortgage industry in 2007 and so far in 2008. Another 18 cases were forwarded to the state attorney general for criminal review since 2006, he said.
“The idea behind licensing is to make sure people on the front end, dealing with customers, are giving them straight information on the variety of programs and products,” said Dan Grzywacz, branch manager and senior loan officer for Exchange Financial Mortgage Corp.’s office in Kentwood and past president of the Michigan Mortgage Lenders Association.
“It helps make sure they have a fiduciary responsibility to help the consumer.”
The two professional organizations backed the proposal as it worked its way through the Legislature. The licensing law does not apply to bank mortgage loan officers, Leyrer said. The groups were unsuccessful in convincing lawmakers to include that category of loan officers, she said, and banks argue they already face more regulation than independent brokers.
Among the provisions:
- Passing a comprehensive industry test.
- A 24-hour pre-registration education covering federal and state law and ethics; those who have been working in the mortgage industry for four and a half of the preceding five years are exempt, as long as they pass the test. Six organizations have been approved to provide education
- Fingerprints and a criminal background check to screen out people convicted of or who pled no contest to felonies and misdemeanors related to embezzlement, forgery, fraud, a financial transaction or securities, or any felony within the previous 10 years.
- A $350 one-time fee and an annual renewal fee that has not yet been set. Additional fees will be assessed for employer and address changes. The National Mortgage Licensing System charge is $30, and $30 per year. The test fee is $100.
New federal law requires every loan officer in the country to register with the NMLS, Leyrer said. It also requires eight hours of continuing education. The new state law requires just six hours, so the state law is likely to be amended to agree with federal law, which was passed after the state law was approved, Leyrer said.
The OFIR commissioner may deny an applicant, censure or even revoke registration for a loan officer.
Grzywacz said the license and testing fees will be no small cost for large mortgage brokers or lenders.
“Some broker operations have one person, some 10 or 12. Quicken has 900 loan officers in the state of Michigan, and they all have to be licensed,” he said.
But Leyrer said the cost must be weighed against protection of the mortgage-seeking public.
“We’re happy to have our industry have a higher level of professionalism,” she said.
“If you’re convicted of a felony, you should not be dealing with highly sensitive material. I know everything about you when you come in: Your Social (Security Number), where you work, your birth date. There should be a certain level of trust there.”