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   ARTICLE   |   From Scotsman Guide Residential Edition   |   April 2007

Driving the License

Consider working with state associations to spur your state’s loan-originator-licensing legislation

The conversation about licensing is louder and more prevalent by the day among mortgage professionals. We know that if the mortgage industry doesn’t address the issue proactively, our state and federal legislators and regulators likely will address it for us.

On a national level, the National Association of Mortgage Brokers (NAMB) is working hard on this issue. Specifically, NAMB is trying to ensure licensing of all loan officers (often called “loan originators” in most legislation), regardless of their employer. While the national association is handling things in Washington D.C., your state association likely should address the issue locally.

The question is how.

It can be tricky for a state trade association address a national issue on a local front and make it palatable to those that serve in the industry, those who are served by it and those who watch over it.

Many state mortgage-industry associations have taken a proactive approach and have helped develop state legislation for loan-originator licensing. As mortgage brokers, you can get involved with your state association to help develop this legislation, if your state does not yet have it in place. Doing so will help enhance our industry’s image and our professionalism.

Looking to other states

At press time, 33 states have implemented loan-originator licensing or registration. A 34th, Arizona, will see its take effect Jan. 1, 2009.

If you work in one of the 16 states that have yet to address this issue, keep two things in mind.

First, when state legislators are considering an issue such as loan-originator licensing, they will undoubtedly research other states’ actions. When they learn that 34 other states already have laws on the books, you can bet that they will seek to model your state’s bill after something already in place.

It would be advisable for your state association’s legislative team to talk with people at the other state associations who have dealt with this issue and if possible, to draft their own bill to present to the legislators.

The other issue to remember is that if loan-originator licensing hasn’t come to your state yet, it likely will sooner than later. Consider that you can read the news almost any day of the week and find articles about mortgage fraud, predatory lending and foreclosure — and you can be sure that the legislators are seeing these articles as well. They really have no choice but to address these issues, and loan-originator licensing is an easy and effective way to go about it.

Once again, it’s a great opportunity to be proactive and to legislate yourselves before someone else does it for you.

Addressing challenges

As with any major achievement, there are challenges with developing loan-originator-licensing regulation. Take Washington state’s loan-originator-licensing law, which took effect this past Jan. 1. It does not apply to all originators.

As mortgage brokers, we are well-aware that our industry is often subjected to laws that other professionals are not. This can be simply unfair and wrong for consumers. Just because a loan originator is employed by an exempt institution doesn’t mean there isn’t the potential to commit fraudulent or unethical behavior.

That said, as Washington and other states face this issue, it is better to have legislation that the state association helps write and pass and that makes our segment of the industry look good than to have no legislation at all. It’s also better than having a law so one-sided that it doesn’t even make sense to pass it.

The other challenge that states around the country must consider is the state regulator’s ability to enforce the law.

In the case of Washington state, more than 9,000 individuals applied for their license by Jan. 1, but only a fraction reportedly had been processed by that date.

Impacting our reputation

Loan-originator licensing is a huge accomplishment for any mortgage association to achieve on a state level. This is a step in the right direction as we regulate our own industry to rid it of “bad actors” while preserving credit opportunities for deserving consumers at the same time.

Implementing such legislation has a great impact on the industry’s reputation. It enhances the image of mortgage brokers and loan originators when consumers ask to see their license number before sitting down to work with these professionals. Consumers can feel more confident about mortgage professionals if they know these professionals are state-regulated.

Legislators also will hold mortgage brokers and loan originators in a higher regard as we work hand-in-hand to combat fraudulent mortgage activity throughout the state and to protect consumers from unscrupulous predators waiting to take their hard-earned dollars.

If your state plans to pursue this issue, keep in mind that this is a perfect example of why trade associations hire lobbyists. A lobbyist “carries the ball” for you at the state level. It also can find sponsors who will take the bill and run with it while also taking your association’s input.

Further, it makes sense to reach out to the trade associations of other originating entities to see if a loan-originator-licensing bill could be a collaborative effort. There’s always strength in numbers. But if it’s go alone or not at all, then by all means, go alone.

While the image benefits are excellent, what makes loan-originator licensing positive is that it keeps the “good guys” in the mortgage-broker industry and the “bad guys” out.

As more states pursue loan-originator licensing and as more state trade associations lead the charge, we hope that consumers, legislators, regulators and the media will view the mortgage-broker industry with the esteem it deserves, especially considering the significant percentage of loans that we originate nationwide.


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