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Feinstein-Martinez Mortgage Licensing Bill Included in Broad Housing Reform Package Being Debated on Senate Floor Today

-Legislation would protect consumers, eliminate bad actors from the mortgage industry-

Washington, DC – Legislation introduced 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, is part of the housing package under consideration today by the U.S. Senate.

The SAFE Mortgage Licensing Act 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 allow for consumers at no charge to verify the credentials of their brokers and lenders.

The Feinstein-Martinez legislation was part of part of major housing legislation approved on May 20 by the Senate Banking, Housing and Urban Affairs Committee.

“Millions of Americans are at risk of losing their most-valued asset – their homes – and no state in the nation has been hit as hard as California,” Senator Feinstein said.

“There were nearly 500,000 foreclosures in California last year, and another 500,000 California homes will be threatened as adjustable-rate mortgages reset in the next two years.

“Unfortunately, lax standards for brokers and lenders have contributed to this crisis. This is an industry where bad actors abound, and where we’re seeing more and more fraudulent and unethical practices.

“Yet there’s just a thin patchwork of regulation, which has failed to protect consumers.  The SAFE Mortgage Licensing Act will change that – it will protect American home buyers from predatory lenders, and help restore the American Dream of home ownership.”

“Although Congress has taken a number of steps to help alleviate the current housing crisis, we need to work proactively to ensure that we don’t find ourselves facing these same problems in the future,” said Senator Martinez, former Secretary of Housing and Urban Development.

“Setting minimum national standards for all residential mortgage loan originators will go a long way towards achieving that goal. I am pleased that this measure is included as part of the broader housing package we are considering in the Senate.”

The SAFE Mortgage Licensing Act  would:

• Ensure that all residential mortgage loan brokers and lenders meet basic professional standards.
  
• Require brokers and lenders to obtain a state license.

• Require states to establish minimum standards for applicants, including:
  
• No felony convictions for the past seven years;
• No similar license revoked;
• Demonstrated record of financial responsibility;
• Meeting minimum net worth or bonding requirement;
• Fulfilling 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
• Passing a written exam (minimum score of 75% required to pass).
  
• Require state regulators to 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 licensing procedures.
  
• Enable consumers at no charge to verify whether their broker or lender has a state license, or is employed by a national bank.

Background

Millions of Americans – including those with weak credit scores – have used sub-prime and exotic mortgages to purchase homes using adjustable-rate loans with low initial monthly payments. Some of these mortgages require little or no down payment.
Many mortgage lenders and brokers offering these mortgages act responsibly. However, some have 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 remain high, as 1.8 million adjustable-rate mortgages will reset to higher rates in the next two years.

California and Florida have been especially hard hit:

• California had the most foreclosure filings in the nation 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;
  
• 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 consumer groups and the President’s Working Group on Financial Markets.

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