DEVAL PATRICK
Signed bill Thursday
A brand-new mortgage loan originator licensing requirement and fee, signed into law by Gov. Deval Patrick Nov. 29 and slated to go into effect next July, has raised the ire of some Bay State brokers and lenders.
“It’s excessive,” Mike Siraco, president of Atlantic Home Lending in Canton, said of the $500 annual fee, from which bank and credit union originators will be exempt.
“There’s the feeling that it’s punitive,” added Denise Leonard, executive director of the Massachusetts Mortgage Association, a brokers’ trade group.
Bill Mullin, president of NE Moves Mortgage, the lending arm of Coldwell Banker Residential Brokerage, said the bank exemption makes the playing field “not quite level.”
Bay State officials estimate that between 20,000 and 25,000 originators will obtain licenses under the new law.
Leonard said the fee is higher than what loan originators pay in any of the 37 other states that register or license originators. However, information compiled by the National Conference of State Legislatures in July showed that Minnesota charges $2,125 for a first-time loan originator license and $1,125 for a renewal. Montana charges $400.
Siraco said the new licensing fees, when coupled with increased net-worth requirements for brokerage firms and lender companies recently developed by the state Division of Banks, could influence his future hiring decisions. The higher net-worth rules for companies are set to take effect next December for current industry practitioners.
Siraco said if his business decides to cover the fee for originators, he will have to pay for five licenses under the new law.
“I have no problem with the licensing itself,” he said. “The point is, the cost of doing business in this state just keeps going up.”
State officials say the increased costs are one answer to the need for higher “barriers to entry” to the mortgage business that industry and nonprofit participants identified at a Mortgage Summit hosted by the Division of Banks in November 2006. The summit was held to identify ways to correct problems with predatory lending connected to foreclosures in the Bay State.
“There’s no question we’re one of the highest,” State Rep. Ronald Mariano, D-Quincy, and chairman of the House Financial Services Committee, said of the new licensing fee. Mariano also co-chaired the conference committee that prepared the final bill that included the licensing fee.
“The goal is to shake out the unscrupulous [loan originators] and to make it difficult for the folks who misled people,” Mariano said.
The license fee will include the cost of a criminal background check.
“We only want professional people in this business,” Mariano said, “and we don’t think [these fees] are out of line.”
The new law signed by Patrick on Thursday requires for the first time that brokers working for licensed firms also must obtain individual licenses to practice their trade.
The Division of Banks will get $5 million of the licensing fee revenues to enforce licensing requirements and support consumer loan counseling and foreclosure prevention activities.
“We wanted to make sure we could provide that counseling and that it wouldn’t cost the taxpayers any money,” Mariano said.
A spokeswoman for the Office of Consumer Affairs also noted that net-worth requirements have not changed since the state began licensing broker and lender firms in 1992.
Lenders and brokers who spoke with Banker & Tradesman agreed that barriers to entry have been low to date, but some remain skeptical that making businesses and individual originators pay more will have the desired effect.
“The fees are there hopefully to protect the consumer, but when you raise costs they either have to be absorbed by the company or passed on to the consumer,” said Alain Valles, owner of Hanover mortgage brokerage company Direct Finance and newly installed president of the Massachusetts Mortgage Association.
Valles said increased costs could limit competition by causing some practitioners to leave the business.
Jim Picciotto, president of Patriot Funding, a Framingham lender, said he thinks the test that soon will be required to get an originator’s license will do a better job of eliminating those who were in the business just to “get rich quick.”
The test will be required as of December 2009, 18 months after the fees go into effect.
But Picciotto said the new net-worth requirement of $200,000 for lender companies will pose a bigger hurdle than the fee for smaller companies already struggling because home sales are down. The net-worth requirement currently is $100,000 for lenders.
Sales of single-family homes, which have decreased for the past two years in Massachusetts, dropped another 17.1 percent in October and 18.7 percent in September compared to the same months in 2006, according to The Warren Group, parent company of Banker & Tradesman.
Siraco said the increased requirement could prompt smaller lenders to switch to a broker’s license and could force others to lay off non-sales staff.
The new mortgage broker’s net-worth requirement of $25,000 cash plus $75,000 bond is the same as the former lender’s requirement, he said. Brokers previously were required only to demonstrate only a “positive” net worth.
Mortgage companies already pay the state between $2,000 and $4,000 every other year for an audit and approximately $1,700 to renew their broker and lender licenses, Siraco said.
Cost of Doing Business
Leonard said the state-imposed costs are higher than those for others involved in real estate transactions in the Bay State. Residential real estate appraisers pay $480 every three years for licenses, and real estate brokers pay $127 every two years. Massachusetts lawyers pay $300 per year for their state-issued licenses.
Despite the anxiety of lenders and brokers about the new costs, not everyone thinks they’re a problem.
“$500 seems like a reasonable fee to me,” said Barry Thomas, branch manager at the Burlington office of Amerihome Mortgage Co.
Thomas said he would require originators in the Burlington office to pay the fee themselves.
“I see this as a cost of doing business,” he explained. “If you want to be in the mortgage business, you should be willing to invest.”
Thomas acknowledged that dealing with increased costs would likely be easier for larger mortgage firms such as his.
Mullin, the NE Moves Mortgage president, said the $500 fee would cost his company $20,000 for the 40 originators it employs.
That cost is “not insignificant,” he said, but it would be easier for his company, which according to statistics from The Warren Group is one of the Bay State’s top five purchase-mortgage lenders, to absorb the cost.
Mullin said he supports both the licensing concept and the fee, because it could weed out practitioners who aren’t serious about the business.
“There are probably too many people in the business [these days], chasing not enough deals,” Mullin said. However, he said he hoped regulators would continue to monitor the cost of the license to ensure it remains “appropriate.”
He said the $200,000 net-worth requirement for lenders would have no impact on NE Moves because the firm’s assets far exceed that amount.
Picciotto of Patriot Funding and Siraco of Atlantic Home Lending also said normal operations already require companies like theirs, which have their own warehouse lines of credit, to exceed $200,000 in net worth.
“Between warehouse and investor requirements Â… the $200,000 doesn’t necessarily affect a lender like us,” Siraco said. “But we are probably in the minority.”
That kind of comment is what worries Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, which represents lenders and brokers.
“This matters in the eyes of the small businessman who is concerned whether he can compete,” Cuff said.
But Cuff said he thinks the industry shouldn’t be too surprised that the negligence of some has led to new regulatory and legislative requirements.
“We universally failed at policing ourselves,” Cuff said. “Since we didn’t, someone else did.”
