Mortgage lenders are making a last-minute bid to scuttle language in the Senate housing-rescue package that would require the licensing of all mortgage brokers and loan officers, arguing that the language would be too burdensome for compliance. The lenders asked Senate Banking Chairman Christopher Dodd in a letter today for a separate floor vote on the language, which would essentially create a national registry of brokers and officers in an attempt to curb the predatory loans that helped drive the foreclosure crisis. A separate vote would make it easier for the Senate to kill that provision rather than try to derail a package with strong support. The groups argued that the measure's provisions "do not meet the test of accountability and reliability, and in addition, impose suitability requirements on employees of lending institutions which are impossible for them to meet."
The signers of the letter included the Financial Services Roundtable, U.S. Chamber of Commerce, the Mortgage Bankers Association and the American Financial Services Association, all of whose members would have to expend additional time and cost to adhere to a new registry. The groups contend that while they generally approve of the underlying bill -- which would create a strengthened regulator for Fannie Mae and Freddie Mac and revamp the Federal Housing Administration's mortgage insurance program -- the licensing standard is a step too far. The language would require that brokers and loan officers obtain a state license as well as provide fingerprints, a summary of work experience and consent for a background check to authorities. State regulators would have to develop a satisfactory licensing system within one year of the legislation's enactment for brokers, while federal bank regulators would register all residential mortgage loan originators employed by national banks.
Dodd included the language in his bill at the insistence of Senate Banking member Mel Martinez, R-Fla., who served as HUD secretary and whose support was crucial in bringing the bill forward. Lenders argue that the language has serious problems, noting that there is no designated state or federal agency with supervisory responsibility over the registry and that state-chartered banks could be subject to different requirements if they operate in more than one state, which would not bring uniformity in licensing. The Martinez language has had the support of mortgage brokers, who have argued for years that they are on an unequal playing field with lenders because most states have such licensing for their industry. The National Association of Mortgage Brokers praised Martinez when he issued unveiled his stand-alone bill this year with Sen. Dianne Feinstein, D-Calif.
The issue could play out when the Senate bill comes over to the House, where leaders are expected to make changes to the bill. House Financial Services Chairman Barney Frank said last month he would be hesitant to wrap the Martinez language into a final package if that would preclude Congress from taking further action against predatory lending later this year. The House has already passed its anti-predatory lending measure, and Dodd has unveiled a measure that is still stuck in his committee. "That's only a partial response to predatory lending. At this point, if we were to do that, we would want to go further," Frank said in May. "It would be a great blunder for the House to essentially sign off that, and that's it for the year because the Senate is not going to do any more."
This article appears in the June 21, 2008 edition of National Journal Daily PM Update.