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Washington, DC – The Senate Banking, Housing and Urban Affairs Committee today approved legislation by U.S. Senators Dianne Feinstein (D-Calif.) and Mel Martinez (R-Fla.) to establish minimum national licensing and oversight standards for America’s mortgage brokers and lenders.

The SAFE Mortgage Licensing Act (S. 2595) is designed to ensure that all mortgage professionals are trained in federal lending laws, ethics, consumer protection, and the sub-prime mortgage marketplace.  It would also create a national database for consumers to use to verify the credentials of their brokers and lenders.

The bill was included in landmark housing reform and foreclosure prevention legislation approved today by the Committee.

“No state has been hit as hard as California. Last year there were nearly 500,000 foreclosures in California, and another 500,000 California homes will be at risk as adjustable-rate mortgages reset in the next couple of years,” Senator Feinstein said.

“And we know that today the rules governing mortgage brokers and lenders are inadequate. There is just a thin patchwork of regulation that varies from state to state. This legislation will create basic minimum standards for states to utilize to protect consumers.

“This will help put an end to abusive lending practices. It will ensure a high level of professionalism, and will help rebuild confidence in the American Dream of home ownership.”
 
“This will help prevent another event like the current housing crisis,”
said Senator Martinez. “The lack of coordination between regulators exposes consumers to predatory loan originators. A nationwide system to keep track of those who’ve violated the law, had their license revoked, or failed to fulfill appropriate requirements will benefit families and the marketplace.”

Following is a summary of the SAFE Mortgage Licensing Act:

  • Would require that residential mortgage loan brokers and lenders obtain a state license, and provide fingerprints, a summary of work experience, and consent for a background check to authorities.
  • To obtain licensing an individual must:
    • Have no felony convictions;
    • Have no similar license revoked;
    • Demonstrate a record of financial responsibility;
    • Meet a minimum net worth or bonding requirement;
    • Fulfill education requirements (20 hours of approved courses, to include at least 3 hours related to federal laws, 4 hours on ethics and consumer protection in mortgage lending, and 2 hours on the sub-prime mortgage marketplace); and
    • Pass a written exam (minimum score of 75% required to pass).
  • Would require the Federal Reserve, Treasury Department, and FDIC to register all residential mortgage loan originators employed by national banks within one year of legislation’s enactment.
  • State regulators must develop a satisfactory licensing system within one year of legislation’s enactment. If this does not occur, the Housing and Urban Development (HUD) Secretary is given discretion to develop the national registry and license, generating revenue for its implementation by charging fees to license applicants.

Background

Sub-prime and exotic mortgages have enabled millions of Americans – including those with weak credit scores – to purchase homes using adjustable-rate mortgages with low initial monthly payments. Many of these mortgages require little or no down payment.

The majority of mortgage lenders and brokers offering these mortgages act responsibly. However, many used predatory lending tactics, resulting in unsuspecting borrowers assuming mortgages they cannot afford.
Most mortgage brokers and non-bank lenders are lightly regulated by state agencies, and standards of accountability have not kept pace with the increasing sophistication of the mortgage industry.
Last year, more than 2.2 million foreclosures were filed in the United States, a jump of 75 percent over 2006, according to data released by RealtyTrac. Foreclosure rates are expected to be high, with 1.8 million adjustable-rate mortgages resetting to higher rates in the next two years.

California and Florida have been especially hard hit:

  • California led the nation in total foreclosure filings and the number of homes in some stage of foreclosure last year, according to RealtyTrac. There were 481,392 filings issued on 249,513 properties last year, more than three times the filings in 2006. Overall, 1.9 percent of all California homes entered some stage of foreclosure last year;
  • Florida had the nation’s second-highest number of homes in some state of foreclosure last year. There were 279,325 filings issued on 165,291 properties last year, a nearly 124 percent increase over the number of filings in 2006. More than 2 percent of Florida households entered some stage of foreclosure last year;
  • Florida’s foreclosure filings in December 2007 were up 275 percent from December 2006, and its fourth quarter total filings were up 211 percent from the fourth quarter of 2006;
  • Five of the 10 metropolitan areas with the highest foreclosure rates in the nation are in California, according to RealtyTrac;
  • In California 47,171 homes were repossessed during the first quarter of 2008, according to DataQuick Information Systems. That’s a 327 percent increase over the first quarter of 2007, when 11,032 homes were repossessed in California.

The legislation is similar to H.R. 3012, introduced in the House of Representatives by Representative Spencer Bachus (R-Ala.).  The national licensing concept has broad bipartisan support and is endorsed by several mayors, consumer groups, and the President’s Working Group on Financial Markets.

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