by Tanya Davis
It seems that the year 2007 will go down in history as the year of the mortgage crisis. Although many experts predicted that the housing bubble would “burst” eventually, it came as a surprise to many when it finally occurred. Much of the weakening in the housing market was blamed on mortgage brokers. In order to address the problem of unscrupulous lenders watchdog groups created the Nationwide Mortgage Licensing System. It has already been joined by 7 states and more are sure to follow.
Historically, almost anyone could operate a mortgage brokerage. In fact, even those who carried a past criminal record could easily begin such a business; they simply had to obtain a license. There was no method in place for tracking brokers or their customer service history. That is why it was so easy for lenders to bilk borrowers out of excess fees and charge higher interest rates.
Now that the housing market has weakened, all mortgage brokers have been placed under scrutiny. Practices like tacking on hidden or excessive fees, imposing prepayment penalties on borrowers who wanted to refinance, and hiding the true cost of subprime loans have created much of the crisis; 1.5 million homeowners were forced into foreclosure in 2007.
If you live in Idaho, Iowa, Kentucky, Massachusetts, Nebraska, New York, or Rhode Island, mortgage brokers with whom you do business will fall under stronger scrutiny. An integral part of the Nationwide Mortgage Licensing System is a new database that is offered online so that officials can monitor mortgage companies. The database will have special identifying numbers, much like social security numbers, which will remain with each person in the business even when they change companies or set up a new firm with a different business name. This will enable borrowers to see infractions that have been committed by that person, regardless of whether they choose to disclose them or not. Firms that open new offices in neighboring states will be seen immediately; if the firm is not sanctioned in one state, or if it had several infractions and is seeking to hide those, its license could be refused. This should serve to prevent fraud and other predatory behavior by lenders.
There are additional benefits for borrowers besides protection from unscrupulous lenders. For example, once you have completed and submitted an application, it will be available through a centralized database system. That means the same system that shares information in order to inform state regulators to help with enforcement will also provide your application through companies with whom you might want to do business, so that you don't have to fill out mountains of paperwork.
In addition to the states that joined the kick-off, eight more are planning to join by July 2008, and by the end of 2009 it is expected that there will be at least 35 states participating in the system. Plus, the NMLS will offer a public portal that can be used to examines a company's state record.The system is somewhat like the one used for regulating securities brokers and dealers. It is expected that the registry may grant over 370,000 licenses to the companies and their loan officers who participate.
However, as with any new program there are detractors. The National Association of Mortgage Brokers is critical of the fact that the system only handles state-regulated banks and lenders. They feel that unreliable loan originators could go from, say, one of these banks to work at a new bank that is federally regulated-- thereby escaping punishment for their past deeds. It is true that some lenders may fall through the crack, but regardless, this appears to be a first step into mortgage regulatory reform. The program was in the planning stages several years prior to the current mortgage crisis, and its implementation is good news to many homeowners and would-be borrowers.
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