Home loan brokers will need license

To state Sen. William Walaska, it didn’t make sense that Rhode Island regulated professionals such as auctioneers and travel agents, but not people who handle home mortgages.

“They’re advising people on the biggest, most important purchase of their lifetime,” Walaska, D-Warwick, said last week.

Now a new state law – based on a bill sponsored by Walaska – will require most of the mortgage originators operating in the state to obtain a license and receive extensive training on the laws and regulations governing loans, deeds and contracts.

Starting next March, originators will be required to register with the state for a $100 fee. Then they must receive between 12 and 24 hours of training – depending on the work experience of the licensee – by January 2009. The law also mandates continuing education.

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“This is going to go a long way to reduce instances of predatory lending,” said Steven L. Cayouette, chief bank examiner for the R.I. Department of Business Regulation. “If we find that they’re not competent, not qualified, not acting in accordance with the law, they’re going to lose their license.”

The law builds on a major piece of legislation passed last year to combat predatory lending.

That measure, called the Home Loan Protection Act, limited the fees that could be charged on loans as well as the requirements that could be attached to subprime loans to people with poor credit.

The new law affects an estimated 15,000 originators who work for mortgage companies and brokers. Those employed by banks and credit unions will be exempt “because we haven’t seen any problems there,” Cayouette said. “The banks and credit unions are usually more concerned about their image than to let someone do something improper.”

A bill regulating mortgage originators was initially under consideration during the 2006 legislative session, and while the Rhode Island Mortgage Bankers Association supported the concept of licensing, others did not.

Even though DBR officials insisted that the licensing of mortgage originators was just as critical as the Home Loan Protection Act, nationwide mortgage companies lobbied against it. The bill was put on the back burner.

This year, tweaks to the legislation made it more palatable to the nationwide groups. A section was added exempting loan originators who work for subsidiaries of large financial institutions such as Citigroup and Bank of America.

Initially, the state had planned to require that training and licensing take place by March 2008, but many in the industry complained that there wasn’t enough time for the licensees to complete their training.

So while the state kept the same registration date – and the $100 fee – it pushed back the training requirement to January 2009.

The law now has the full support of the state mortgage bankers association, according to James Hahn, the group’s legislative counsel. “We think it’s good for mortgage lenders in Rhode Island and consumers,” Hahn said.

No one knows for sure how many originators operate in Rhode Island. State officials estimate as many as 15,000, but that number has likely been reduced by recent problems in the mortgage industry and the stagnation of the housing market.

Although companies have to be licensed through the state as lenders or loan brokers, any individual working today for those licensed companies can handle mortgage origination – no license, training or experience are required. Cayouette said 922 companies are licensed to make loans or broker them in the state.

Under the current system, the DBR fields consumer complaints about questionable lending practices, and companies are given 10 days to respond. Once that response is received, the complainant is allowed to give further input. “Nine times out of 10, it ends there,” Cayouette said.

But if there is a clear violation of the law, lending companies face penalties, which range from orders to fix the problem to a revocation of a license for repeat offenders.

The DBR keeps tracks of the complaints, but Cayouette said a tally of the number of complaints was not easily obtainable last week. He also said he could not say whether the amount of complaints had increased or declined in recent months.

The department is still in the process of compiling information about predatory lending to meet the requirements of the Home Loan Protection Action, Cayouette said.

One of the benefits of the new law, Cayouette said, is that it allows the DBR not only to go after companies, but also after individuals who engage in illegal lending practices.

“We have seen in the past where rogue mortgage originators do bad things at one company, leave that company and go to another company and do bad things again,” Cayouette said. “They just keep bouncing around. This law is going to curtail that.”

That’s the reason why the mortgage bankers association supported licensing, Hahn said. The law will enable lending companies to quickly learn about a new employee’s conduct with previous employers. “In the past, it had taken a little while to ferret that out,” Hahn said.

Under the provisions of the law, any loan originator seeking a license with less than five years’ experience is required to have 24 hours of training before getting the license. For those with five or more years of experience, 12 hours of training are required.

Additionally, anyone who had been exempt as a loan officer for a bank or credit union but is moving to a non-exempt employer will have 120 days to complete the training.

The law also requires that loan originators show proof of a license to their loan applicants. The amounts at which licensed loan brokers and lenders are to be bonded were doubled in the measure, from $10,000 to $20,000 for brokers and $25,000 to $50,000 for lenders.

Cayouette said about 20 states now require registration or licensing for mortgage originators, and more are moving in that direction.

“It’s a wave that’s occurring,” he said. “Eventually, you’re going to see it in almost every state.” •

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