I don’t believe that licensing mortgage brokers nationwide would have had much effect. Mortgage brokers are licensed in California (although their subordinate agents don’t have to be) and yet California is widely regarded as being the hub of the worst loan origination practices in the nation.
The effectiveness of licensing programs is no better or worse than the enforcement of those rules and regulations. Merely instituting education and qualifications requirements and extracting annual licensing fees is a waste of time unless the licensing agency is empowered and enabled to wield the big stick.
Unfortunately, the big stick of effective enforcement programs is very costly, both in terms of effort and time. Because license revocation amounts to depriving the individual of the right to earn a living in that occupation the burden of proof and the due process it takes to pull that trigger are both pretty high.
Moreover, the one thing that the most grievious offenders have in common is their proclivity to use the legal system to their advantage. And there’s enough money involved to make it worth their while to take the risks. They will appeal the administrative revocation of a license in court, where the rules of evidence create a very high burden of proof. A lowly state licensing board can quickly find itself outclassed by expensive lawyers retained by multi-millionaire offenders.
Loan originators themselves are a very transient group, too, moving from one venue to another. It’s a lot of heads moving around, and keeping track of them would be a monumental task. I’m not suggesting that we should just let them slide because it’s hard to regulate them, but I am suggesting that it’s very doubtful our society has the will to pay the costs it will take to do this effectively.
The banks and other direct lenders are already charged under existing laws, rules and regulations with the responsibility of due diligence. The federally regulated banks more so than the mortgage houses like Countrywide or Ameriquest. As far as I can see our failures primarily stem from allowing these lenders to run rampant.
None of the really bad loans would have ever been made had the lenders not encouraged them by devising loan programs and underwriting criteria that literally enabled them.
If the direct lenders had exercised even the most rudimentary levels of due diligence the NINJA loans would have never been made; the overvalued appraisals would have never been accepted; and the crooked loan originators and appraisers would have been barred at the lender level from doing any more damage without having to wait a year for a state licensing board to go through their paces. It takes a lender about 10 minutes to add a name to their “Do Not Accept” lists, and that effectively solves that problem.
Ounce of prevention vs. the pound of cure.
But the lenders didn’t do their job and the feds allowed them to get away with it by turning a blind eye. The feds have a ton of leverage on the regulated institutions and only slightly less leverage on the mortgage houses, but they didn’t use it.
IMO, licensing all mortgage brokers and their subordinate agents is a necessary step, but it’s no panacea. Their misconduct is a symptom with really nasty side effects, but it’s not the underlying cause. It’s the direct lenders who are the real problem.
