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Loan Workers May Undergo Fingerprinting

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By BILLY HOUSE

The Tampa Tribune

Published: July 12, 2008

WASHINGTON - A little-noticed provision co-authored by Sen. Mel Martinez and contained in a massive Senate housing bill would create a national licensing registry for mortgage loan workers, requiring them to undergo fingerprinting and background checks.

The aim is to hold loan "originators" accountable and protect consumers from scammers, say Martinez, a Florida Republican who is a former U.S. Department of Housing and Urban Development secretary, and Democratic Sen. Dianne Feinstein of California.

The Senate could act on the entire bill, including the new registry, as early as today.

Overall, the huge package addresses the housing crisis in a number of ways, including more relief for debt-plagued homeowners facing foreclosure, overhauls of the Federal Housing Administration and government-sponsored home loan giants Fannie Mae and Freddie Mac, and new housing tax credits.

But the fingerprinting mandate - although coming at a time when consumer confidence is smarting from dishonest residential lending and foreclosures - is being criticized as too far-reaching.

Groups Oppose Mandate

Groups as diverse as the liberal American Civil Liberties Union, the American Conservative Union and the libertarian Competitive Enterprise Institute question why the fingerprinting mandate needs to cover almost anyone who accepts a mortgage application from a would-be home purchaser, negotiates mortgage terms, or processes loan packages.

The bill's definition of loan "originator" includes even real estate agents who get compensation from a lender for helping buyers with loan applications, and low-level part-time or seasonal mortgage company employees.

Under the proposal, applicants convicted of a felony during the prior seven years would be rejected for licensing and the new registry.

"We are troubled by the scope of this requirement and the lack of a justification as to how this would serve the goal of reducing mortgage fraud," wrote an alliance of such groups to Senate Majority Leader Harry Reid, D-Nev., and Senate Minority Leader Mitch McConnell, R-Ky.

In a recent letter in The Wall Street Journal, John Berlau, director of the Competitive Enterprise Institute, a Washington-based think-tank, asked, "How would the targeting of lower-level employees - rather than executives like Countrywide Financial CEO Angelo Mozilo - stem the creation of problematic mortgages?"

In an interview, Berlau said he is stumped as to why the measure hasn't generated more debate from other senators.

Already, Florida and 38 other states have fingerprinting requirements that cover a narrower field of categories within the industry, such as mortgage company executive officers, directors, owners and other principals, according to the Conference of State Bank Supervisors.

Virginia, Alabama, Delaware, Hawaii, Vermont, Tennessee, Oregon, Wyoming, Nebraska, North Dakota and New Mexico do not have any such requirements, and neither does Washington, D.C.

Under the Martinez-Feinstein plan, though, the rules would change, even for states such as Florida.

"We do not license all mortgage loan originators," said Greg Oaks, chief of the licensing bureau for the state Office of Financial Regulation in the Florida Division of Finance.

However, the Martinez-Feinstein language requires all loan originators, as defined in the bill, to obtain a "unique identifier" code for a new Nationwide Mortgage Licensing System and Registry that will follow them from job to job, or state to state.

More Would Have To Be Licensed

To be assigned such an identifier, the applicant would have to provide personal information and submit to fingerprinting by either the FBI or state law enforcement authorities, and background checks.

Martinez spokesman Ken Lundberg acknowledged some people who are not licensed in the industry will have to be - and therefore do not now have to submit to fingerprinting and background checks.

Lundberg emphasized that the aim is to have a uniform way to track those "who perpetuate fraudulent mortgage schemes," even when they jump among various states and jobs.

This provision is identical to language in the comprehensive mortgage reform bill that the House passed overwhelmingly in November. The National Association of Mortgage Brokers approves of the legislation.

"NAMB has been behind a national registry of all originators since 2000; we were the first ones to come up with this idea," said Marc Savitt, president of the group.

But not all lending-industry groups are thrilled with the idea of a national licensing system and database.

"Though well-intentioned, this is going to be overly cumbersome," said Anne Canfield, executive director of the Consumer Mortgage Coalition, a trade association of large national banks and mortgage subsidiaries.

She said that although fingerprinting itself isn't an issue to her group, most lenders already have professional-training programs in place for loan officers and "we don't feel that individual loan officers need to be licensed."

The loudest criticism comes from outside the lending industry.

Along with questions about whether a significant number of bad loans actually were made by ex-convicts, some worry the bill does not promise much privacy protection for the personal information that will be stored in the national database.

Tim Sparapani, the ACLU's legislative counsel, said the measure also appears to be more of a "feel-good measure" for lawmakers, who want to be able to tell constituents they are getting tough in addressing unscrupulous mortgage practices.

Reporter Billy House can be reached at (202) 662-7673 or bhouse@tampatrib.com.

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