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State Adopts New Mortgage Broker Tracking System

By Greg Bordonaro

gbordonaro@HartfordBusiness.com

06/30/08

The state Department of Banking will require state mortgage companies to apply for or renew their broker licenses on the National Mortgage Licensing System, a new internet-based program that hopes to streamline the licensing process and enhance supervision over the industry.

Howard Pitkin, commissioner, Connecticut Department of Banking

The new requirement begins July 1.

All other state mortgage lenders, brokers and loan originators will have until Sept. 30 to create a record on the system, where their licensing information will be stored.

 

Early Adopter

Connecticut is one of the first states to adopt the system, which will allow mortgage companies to apply for and manage their license electronically, creating a central licensing database accessible over the Internet.

It’s also designed to streamline regulation by establishing a uniform license application and renewal process that must be adopted by all states that join it.

Connecticut will be one of 15 states to start using the system this year. Forty-one states have signed statements saying that they intend to join.

The system will also establish a database for state regulators tracking enforcement actions against particular mortgage lenders across state lines.

That should help prevent corrupt agents from moving from state to state to conduct mortgage fraud, a common way thieves do business, said Howard Pitkin, commissioner of the state Department of Banking.

Since late 2007, as part of the subprime credit fallout, Connecticut has revoked more than 80 mortgage broker licenses, a record number of state enforcement actions. The database will allow such information to be shared with other states.

 

Long Overdue

“If someone from Connecticut engages in fraud, it follows them from one state to another,” Pitkin said. “There are thousands of mortgage licenses in the state, so it is a much more efficient way to keep track of them. It’s a much more organized system.”

The new electronic system is long overdue, said Peter Spalthoff, executive director of the Connecticut Society of Mortgage Brokers. “A system was needed to streamline and digitize licensing information that states can use to track brokers.”

Spotting Bad Lenders

The Conference of State Banking Supervisors and the American Association of Residential Mortgage Regulators developed the new system. Notably, it will not interfere with the state’s regulatory authority to approve, deny, suspend or revoke a license.

Whether the new licensing system would have mitigated the current mortgage-lending crisis is not certain, experts said, but the hope is that it will help prevent the problem in the future.

“It probably would have had some effect, but to what degree I don’t know,” Spalthoff said. “This system will hopefully allow state regulators to spot bad lenders and prevent them from carrying out their business.”

 

Industry Support

Representatives of the mortgage-lending industry have shown support for the new licensing system, acknowledging that it will ease the process, save time and reduce costs for them and the state.

However, Spalthoff does question the fairness of rules specifying who is required to join the new system.

Federal law precludes states from regulating federally chartered banks, thrifts or credit unions. As result, they will not be required to join the licensing system. That could create a false sense of security for consumers, Spalthoff said.

“We aren’t the only ones doing business in the state,” he said. “What’s to say someone in a bank doesn’t screw up? They should be required to abide by the same laws.”

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