By Kenneth R. Harney
Saturday, July 12, 2008

Should your mortgage loan officer's fingerprints be 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 home loan?

Those could be the case if far-reaching housing and mortgage legislation is approved by Congress and signed by the president this summer. The law would create a vast, mandatory licensing and registration system covering anyone who originates home mortgages, including independent brokers, bank employees, mortgage company loan officers and even real estate agents who get money from lenders for helping buyers with loan applications.

The idea, proponents say, 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 based on fingerprints and other "unique identifiers."

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 to entry in the industry. Thousands of workers left jobs in other fields to make big money in the mortgage business. Because 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, then pocketed the fees and ran, it was easy for them to find work in another state or at another company because there were few mechanisms to track scammers.

Under the legislation, the rules would change drastically. Loan originators not employed by federally chartered banks or credit unions would be certified under a new Nationwide Mortgage Licensing System and Registry maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators.

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

Applicants would also have to submit evidence demonstrating their "financial responsibility" and would have to pass written tests after at least 20 hours of professional education courses. To qualify for license renewal, they would have to take at least eight hours of continuing-education training each year.

Employees of nationally chartered banks and credit unions who originate loans would have to meet similar standards but under programs run by federal financial regulators rather than states. They also would have to submit fingerprints and be assigned "unique identifiers" -- codes that would follow them from job to job.

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

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

Major lenders already have extensive training programs in place for their retail loan officers, Canfield said. "A lot of this is going to be duplicative and unnecessary" for employees of the biggest banks.

The National Association of Mortgage Brokers said it welcomes uniform standards covering all originators in all states.

Marc Savitt, president of the brokers group, called the legislation "a major step forward for the entire industry and for consumers."

But what about mandatory fingerprinting? Lending trade groups have not complained, but a politically diverse coalition of advocacy organizations -- including the American Civil Liberties Union and the American Conservative Union -- wants the Senate to strip the fingerprinting requirement on financial-privacy grounds.

Bill Matthews, president of the State Regulatory Registry, a subsidiary of the Conference of State Bank Supervisors, said fingerprinting should not be an issue. Stockbrokers, among others, are fingerprinted and subject to FBI background checks, and a number of states already have similar requirements for mortgage originators, with no data security lapses.

Coming off the fraud and foreclosure scandals of the boom years, a national registration and oversight system for the mortgage lending industry appears highly likely, and could be up and running within a year.

Kenneth R. Harney's e-mail address is KenHarney@earthlink.net.