Brokers in the Fast-and-Loose Lane? Run Their Licenses.

There are lots of proposed remedies to prevent another mortgage catastrophe like the one we're going through now. Most of the suggestions I've seen won't fix the loopholes that allowed so many borrowers to take on mortgage loans they couldn't afford.

But there is one change that may help stem fraud in the mortgage industry, and it could reduce the number of unscrupulous or unlicensed brokers and loan officers who move from state to state preying on borrowers.

The Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators have launched the Nationwide Mortgage Licensing System, which is designed to help state licensing officials keep track of individuals and companies responsible for arranging mortgage loans.

The system streamlines the regulatory process by allowing state-licensed mortgage lenders, brokers and loan officers to use one form to apply for, amend, update or renew their licenses online.

The registry brings uniformity and transparency to the mortgage industry without impairing the ability of states to approve, deny, suspend or revoke licenses.

Often, unsavory individuals and companies can continue their unlawful business practices because there are no uniform mortgage licensing rules. What they are prohibited from doing in one state might be allowed in another. Some states have tough mortgage laws; others do not.

Clearly, this new registry won't catch people who choose to escape detection by not applying for a license. But the database could be used by responsible lenders, brokers and eventually consumers to check whether someone who claims to have a state license to arrange mortgage loans actually does.

"It's incredible how much mortgage fraud is out there and how pervasive it is," said Bill Matthews, senior vice president of the Conference of State Bank Supervisors, which owns and operates the Nationwide Mortgage Licensing System.

With the mortgage registry, brokers, lenders and loan officers fill out a comprehensive application that can be forwarded to states participating in the system. As part of the process, applicants have to disclose a great deal of information, ranging from their Social Security number to any criminal or civil actions against them. They also must provide fingerprints and identify affiliations with industry companies such as lenders, brokerages and title companies.

The database is also designed to track individuals or companies that do business under various names.

"From this single record it allows the regulators to see the entity exactly the same as other regulators," Matthews said in an interview. "A uniform application increases the breadth and depth of information available."

What a great tool this will be once all the states participate. Imagine state investigators being able to check the status of a questionable applicant nationwide without having to search databases in 50-plus jurisdictions.