U.S. Senators Dianne Feinstein (D-Calif.) and Mel Martinez (R-Fla.) introduced legislation today aimed at tackling abusive lending practices that have contributed to the current mortgage crisis.
The so-called “Secure and Fair Enforcement in Mortgage Licensing Act” would create national licensing standards for mortgage brokers and lenders and ensure that all mortgage professionals are properly trained in legal aspects of lending, ethics, and consumer protection.
It would also create a national database that consumers can use to verify the credentials of brokers and mortgage lenders they choose to work with.
Ideally, the move would “eliminate bad actors from the mortgage business,” according to the release.
“Today, there are no national standards for mortgage brokers and lenders,” Feinstein said. “And there is only a thin patchwork of regulation by the states.”
“This has allowed unsavory lenders and brokers to take advantage of borrowers, and contributed to the sub-prime mortgage crisis.
“This sets up a nationwide system to keep track of those who’ve violated the law, had their license revoked, or failed to fulfill appropriate educational requirements,” said Senator Martinez, a member of the Senate Banking Committee and a former secretary of Housing and Urban Development.
The SAFE Mortgage Licensing Act would require all residential mortgage loan brokers and lenders obtain a state license, provide fingerprints, a summary of work experience, and consent for a background check to authorities.
To obtain licensing an individual must:
• Have no felony convictions;
• Have had no similar license revoked;
• Demonstrate a record of financial responsibility;
• Fulfill education requirements (20 hours of approved courses, to include at least three hours related to federal laws, four hours on ethics and consumer protection in mortgage lending, and two hours on the subprime mortgage marketplace); and
• Pass a written exam (the exam must be at least 100 questions; minimum score of 75 percent required to pass).
The legislation also calls for state regulators to develop a satisfactory licensing system within one year of its enactment.
If that fails to occur, the HUD Secretary would be given discretion to develop the national registry and license, generating revenue for its cost by charging fees to applicants.
The move comes amid a rise in loose lending practices that has led to a record number of defaults and foreclosures, especially in states like California and Florida.