Mortgage bankers, brokers at odds

Mortgage bankers, brokers at odds

	Published : Thu, 18 Oct 2007 21:20 By : Agencies Print this Story

WASHINGTON (AP) - Mortgage brokers are squaring off with bankers over efforts in Congress to impose stiffer regulations on the industry.

The outcome of the long-running fight could help shape the future of a market battered by lax lending practices that have led to a surge in home loan defaults.

Brokers acknowledge their industry would benefit from mandatory criminal background checks, education requirements and licensing by state or federal authorities. But they say the same standards should also apply to bank loan officers.

While bankers agree on the need for stricter professional standards, they say the emphasis should be on mortgage brokers, who face dramatically different licensing requirements from state to state. The banks say their industry is already regulated enough by state and federal authorities, and that any additional rules would raise costs on the industry with uncertain benefits.

The dispute between mortgage bankers and brokers is likely to gain prominence next week, when Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee is expected to introduce legislation designed to limit abusive lending practices.

While a Frank spokeswoman declined to comment on the timing of the bill's introduction, it is widely expected to be introduced as soon as Monday. Frank plans a hearing on the issue next Wednesday.

Frank's bill is likely to have support in the House, but its future is unclear in the Senate, where Democrats have not banded together around one approach.

A bill similar to Frank's was introduced in May by Sen. Charles Schumer, D.-N.Y., but hasn't moved forward as Sen. Christopher Dodd., D-Conn., chairman of the Senate Banking Committee, has been developing his own legislation.

Mortgage brokers in particular have attracted scrutiny from politicians and consumer advocates, who say they unfairly steered borrowers toward loans with low introductory 'teaser' rates that skyrocket in payments after two to three years.

Democratic presidential front-runner Hillary Rodham Clinton in August called for 'an end to fly-by-night mortgage brokers peddling loans to unqualified applicants.'

While the Bush administration has generally urged a limited response to mortgage market turmoil, Treasury Secretary Henry Paulson this week signaled a willingness to consider stricter regulations for mortgage brokers.

'The development of a uniform national licensing, education, and monitoring system for all mortgage brokers is worth considering,' Paulson said in a speech Tuesday. 'It is no secret that, while not the norm, some fraudulent activity on behalf of mortgage brokers occurred.'

Everyone involved in the mortgage lending process, Paulson said, 'should be able to demonstrate a sound understanding of the products that they will be selling.'

Frank's bill would require state or federal licenses for loan officers and mortgage brokers, according to a draft outline circulated among industry officials and consumer advocates.

Mortgage brokers are happy with that outcome. Frank 'seems to be taking a balanced approached to the mortgage issues at hand today,' said Roy DeLoach, executive vice president of the National Association of Mortgage Brokers.

Erick Gustafson, vice president for government affairs at the Mortgage Bankers Association declined to comment on the drafts of Frank's proposals that have been circulating around Washington. But he said the mortgage bankers, which oppose any effort to require licensing for loan officers.

'The institutions themselves are already licensed,' Gustafson said. Banks, he said, 'are liable for the actions of the individuals that work for them...there's already a structure that exists for ensuring that loan officers are of good quality.'

Still, Howard Glaser, a former housing official in the Clinton administration and formerly the mortgage bankers' top lobbyist, doesn't buy that argument.

'This is the largest investment that most people make in their lifetimes,' Glaser said. 'Whether they are going to obtain a loan from a bank loan officer or an independent broker, the standards ought to be the same.'

Right now, he said, it's far too easy for scam artists to close up shop in one state and move to another.

The mortgage industry is a powerful force on Capitol Hill, and it remains to be seen whether the it will be able to defeat or alter legislation.

The mortgage bankers trade group includes giants like Bank of America Corp., Countrywide Financial Corp. and Wells Fargo & Co. as well as several thousand smaller lenders. It spent $1.5 million in lobbying in the first half of this year, after spending more than $2.7 million last year, according to forms filed with the Senate's public records office.

While tightened licensing standards for brokers and loan officers are a good idea, prohibiting incentive payments that reward mortgage brokers and banks for steering customers to more expensive loans, said Michael Calhoun, president of the Durham N.C.-based Center for Responsible Lending.

Under the current system, Calhoun said, brokers have been paid more for high-rate loans 'and they weren't on the line if the loan went bad...Not bad work if you can get it.'