The time has come for every mortgage broker in California to possess a state license, regardless of whether he or she proffers mortgages independently or is an employee of a banking corporation. Or so says the California Association of Mortgage Brokers. The association’s position is (mostly) on the right track.
Licensing of people who sell major financial products like real estate, mortgages and insurance is good public policy because the issuance of a license creates an official means to conduct background checks, impose educational requirements and investigate allegations of wrongdoing against individual licensees. These public policy benefits explain why independent mortgage brokers already are required to obtain a license, and the same benefits make a strong argument as to why it’s also a good idea to impose the same requirement on individuals who work for corporations. Along with organizations, these individuals should be well qualified and responsible for their own actions.
Further, licensing creates a centralized database of records that lenders conceivably could tap to stop troublesome brokers from circulating from one lending institution to another. A record of disciplinary actions against brokers’ personal licenses would enable lenders to investigate job candidates before they were hired.
True, licensing always entails some unavoidable ills: It establishes more bureaucracy, curtails competition and increases the cost of doing business for licensees. Yet those ills are a small price to pay for the benefits, especially in a sector that is plagued by cyclical oversupply of providers and, judging by news headlines, seemingly rampant fraud.
License requirements must be meaningful, not superficial. There should be no “conditional” mortgage broker license like the one that allowed a flood of ill-prepared newbies into the ranks of real estate salespeople in California.
Nor should licensing be implemented without adequate enforcement authority. Whichever agency grants the licenses should be empowered to suspend or revoke them and track and report conduct that might warrant criminal prosecution. Lack of enforcement can make a mockery of any licensing scheme.
A cynic might suggest that more licensing would help a group like the CAMB sign up more members since the names of all those corporate-employed brokers — some 115,000 of them by one estimate — presumably would become a matter of public record that could be tapped for recruitment. Yet perhaps any group still should be lauded for support of a plan that would benefit the public as well as itself and its own members.
A cynic might also suggest the CAMB has pushed forward the licensing proposal at this time to distract lawmakers from their focus on mortgage products. In its defense, the group’s support of uniform licensing throughout the state isn’t new.
Yet the group is misguided in its argument that expanded licensing would be preferable to more regulation of payment-option, interest-only and other “exotic” loan products. Rather, more regulation of these products is just as necessary as more regulation of brokers. Regulation of one shouldn’t preclude regulation of the other. Insurance brokers and products are regulated as are doctors and medical devices, among other examples. Licensing alone wouldn’t solve the problem of creative mortgages any more than restrictions on the mortgages would solve the problem of disreputable brokers. Nor is regulation a cure-all for predatory lending practices.
It’s hardly original to mention that a mortgage is one of the most costly and important financial products of most people’s lives. Yet surely, there should be more regulation to protect the public from bad products and incompetent salespeople. California licenses individual barbers and hair stylists, not just beauty salon operators, to protect people from bad haircuts. Shouldn’t the same sort of regulation protect homeowners from the possibility of financial ruin?
Even better would be state laws throughout the land that would define mortgage brokers (and realty salespeople) as fiduciaries who had a legal responsibility to act in the best interest of their clients. Perhaps licensing would be a reasonable first step toward that very desirable goal.
P.S. The CAMB has posted a competition called “It Should Be a Law” on its Web site. Mortgage professionals are invited to submit “ideas for new laws, changes to current laws and proposals to eliminate laws.” The winning idea will be crafted into legislation that the group will try to have enacted into federal or state law next year.
Marcie Geffner is a real estate reporter in Los Angeles.
Copyright Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.