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Tougher standards could be imposed on mortgage officers

Should your mortgage loan officer have fingerprints on file in a national electronic database, even if he or she has never been convicted of a crime?

Should you be able to go to a Web site to check out your lender or mortgage broker's professional file – including employment history and disciplinary actions – before signing up for your next loan?

The answer to both questions could be yes if legislation is approved by Congress and goes to the president. It would create a vast new licensing and registration system covering anyone who originates home mortgages, whether an independent broker, a bank employee, mortgage company loan officer or even a realty agent who gets money from a lender for helping buyers with applications.

The idea, say proponents, is to require more stringent professional standards at the front lines of the mortgage industry – tougher educational and competency tests, annual recertifications and a national tracking system.

These new standards, in turn, could help eliminate two of the key problems that led to widespread fraud and predatory lending abuses during the housing boom years of 2002-06:

Minimal barriers for entry into the industry. Thousands of workers left jobs in other fields – from driving trucks to landscaping – to make big money in the mortgage business. Since professional education and financial standards were low in many states, it was quick and easy to make the switch.

Inadequate regulatory oversight and coordination at the federal and state levels. When loan officers created fraudulent or toxic loan transactions, pocketed the fees and ran, it was easy for them to find work in another state or at another company since there was no mechanism to track scammers.

Under the legislation, the rules would change drastically. Loan originators not employed by federally chartered banks or credit unions would have to be certified under a new Nationwide Mortgage Licensing System and Registry.

Besides fingerprinting submissions to the FBI for screening, license applicants would be required to produce current credit reports and detailed personal employment histories. Applicants convicted of a felony during the prior seven years would be rejected. Persons convicted of serious financial crimes such as money laundering would be banned for life.

Applicants also would have to submit evidence demonstrating their “financial responsibility” and would have to pass written tests following at least 20 hours of professional education courses.

Employees of nationally chartered banks and credit unions who originate loans would have to meet similar standards. They also would have to submit fingerprints and would be assigned “unique identifier” codes that follow them from job to job.

Though most lending industry groups support the concept of a national licensing system and personnel database, some are unhappy about the costs and bureaucracy.

“This is going to be very cumbersome, very expensive and time-consuming” to deal with, said Anne Canfield, executive director of the Consumer Mortgage Coalition, a Washington-based trade association of large national banks and mortgage subsidiaries.

The National Association of Mortgage Brokers says it welcomes uniform standards. Marc Savitt, president of the brokers group, called the legislation “a major step forward for the entire industry and for consumers.”