MINNEAPOLIS (AP) -- The Minnesota Association of Mortgage Brokers Inc. plans to ask the Legislature to require licenses for loan officers who sell mortgages in a move to protect consumers and bring accountability to the industry.
In order to get the license, the MAMBI is recommending that loan officers receive education, an exam and a background check.
"Today, it's possible to start doing mortgages by getting a company license that costs about $800 and have no knowledge of the business but an ability to take an application," MAMBI President Tom Birch said. "Companies can be bad actors in different states, and there's no way to trace it."
Industry leaders say certification and accountability need to be mandated for people who sell consumers a product that can require a 30-year commitment and hundreds of thousands of dollars.
The regulations would help enforce laws against mortgage fraud -- when people use fake documents to qualify for loans-- and against flipping -- when homes are bought and quickly resold at greatly inflated prices, made possible by improper appraisals.
"Licensing means there's something to take away to prevent the bad apple from operating again in Minnesota," said MAMBI executive director Pat Martyn.
Minnesota law does allow for an individual to be barred from originating mortgages in the state, said Bruce Gordon, Minnesota Department of Commerce spokesman. Sanctions have been taken against 55 companies or individuals originating mortgages since 1999, according to the department's records.
But MAMBI wants something more specific.
"With licensing, I'd know they have had some education, and with the background check I'd know they're not criminals." said Birch, who also is executive vice president of ABN AMRO Mortgage, in charge of its Minnesota operations.
Once employed, "If they do something wrong, they can lose their license, which will make them basically unemployable in our industry, which is the way it ought to be," he said.
Dan Hardy, executive vice president and general counsel for the Mortgage Association of Minnesota, said his group has supported the idea of a licensing law since the late 1980s but it doesn't have a formal position. He said the association is waiting to see what position the Commerce Department would take.
Jim Bernstein, the current commerce commissioner, favors a licensing law. But, since he is a gubernatorial appointee, he could be out when the Legislature reconvenes in January.
He said licensing would help enforce laws against predatory lending, which includes sticking unsuspecting borrowers with needlessly high interest rates, loan costs and prepayment penalties.
To sell mortgages in Minnesota, a person must have a mortgage broker's license or work for someone who does. Minnesota licenses 1,682 mortgage originators -- brokers -- and many have loan sellers working for them.
About a dozen states license loan officers, and it's an emerging trend, said Paul Mondor, partner at Lotstein Buckman, a Washington law firm providing mortgage-banking compliance counsel to the industry.
Armand Cosenza, president of the 1,300-member National Association of Mortgage Brokers, said the association's model statute includes pre-licensing education and testing, a criminal background check and continuing education requirements.
Cosenza is a broker in Ohio, where a law effective May 2 requires licensing of brokerage owners and loan officers. "We excluded banks, savings and loans and credit unions; you pick the fights you can win," he said.
He said that by Oct. 25, Ohio had received 9,200 applications, more than 1,000 of which were denied because of criminal records. Rejected applicants have the right to a hearing, and about 60 percent of them had only misdemeanors, and some may get licensed, "but there's legitimately probably 300 to 400 that will not be issued," Cosenza said.
Commissioner Bernstein called it outrageous that there are mortgage leaders who "take advantage of the trust that gets placed in them, misrepresent and flat-out lie. It costs Minnesotans money, it costs people their homes."
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