Getting a mortgage originator license is a costly, sometimes lengthy process, but Mortgage Access Corp. thought it had an efficient solution: Get unlicensed employees to start the loan, but have them kick it over to licensed lenders to handle and sign off on the final paperwork.
That didn’t work out so well, as it turns out.
A May 27 settlement with 10 state banking departments, including Massachusetts’, will cost the New Jersey-based lender $3 million in fines for violating the licensing system. The settlement notes that these unlicensed loan originators negotiated loan rates and terms with applicants, submitted forms and paperwork and got commission payments for starting these loans.
Nicole Mizzulo, spokeswoman for Mortgage Access Corp. parent company Weichert Financial, told Banker & Tradesman the company wasn’t intentionally trying to subvert the law under its processing system. In a public statement, Weichert said it had quickly acted to change its ways even before the multi-state examination that led to the settlement. Still, it was ordered to make operational changes, pay the fine and reimburse fees to New York customers.
Mortgage Access Corp. is a particularly notable recent example of how new licensing requirements enacted in 2008 are still posing serious problems for some mortgage companies and, more commonly, individual loan originators.
Black & White
If loan originators let licenses lapse, however briefly, or switch employers without having licenses changed ahead of time, they’ll be hit with fines through the state Division of Banks. The cost is usually $1,000 for each loan they worked on during the gap.
As Banker & Tradesman reported last year around this time, confusion over the new rules led many loan originators and their companies to stumble. That led to often six-figure fines as penalties for – apparently – inadvertently violating the law in its early days.
A dozen individuals’ regulatory citations have been made public so far this year, on pace to fall well below 2010’s year-end total of 46 fined individuals. But 10 of this year’s 12 citations have involved license violations, and industry insiders note that while the transitional pains have dwindled for most, licensing regulations can still create pitfalls.
And the Division of Banks isn’t showing leniency for honest mistakes.
Stanley V. Ragalevsky, Boston-based partner with law firm K&L Gates, argued that intent should be taken into consideration for loan originators who slipped up for a few days.
“If they were unlicensed for a week, and if it was more of a misunderstanding than anything else, you should treat that differently than someone who knew they were unlicensed,” he said.
But the division is maintaining a black-and-white stance on the matter, Ragalevsky said. That means innocent paperwork flubs, even when they do no harm to consumers, still result in fines and the reputational damage that comes with seeing one’s name on the division’s website as a violator.
And the dozen individuals listed so far for 2010 aren’t the only ones dealing with the issue, Ragalevsky said – more cases against loan originators are ongoing and haven’t yet been resolved or made public.
Drawing A Line
Massachusetts Commissioner of Banks David Cotney did not return requests for comment as of press time. But Cotney had previously told Banker & Tradesman that the regulator needs to levy these fines to show it’s serious about enforcing new rules. Obtaining state licenses can be costly and time-consuming, he said, so the point is to make rule-breaking an expensive problem that loan originators take care to avoid.
In the recent citations, some loan originators had let licenses lapse for a few weeks in 2010 or further back, or apparently made loans in Massachusetts while not yet being licensed here.
A few were cited for not being “properly sponsored.” Denise Leonard, director of the Massachusetts Mortgage Association (MMA), said this indicates a loan originator had begun work for a new company before getting full licensure under the new employer – and any pending loans that originator has in the pipeline will earn them a fine apiece.
As for Mortgage Access Corp.’s troubles, Leonard said it was entirely possible the New Jersey company didn’t understand it was violating the law, but it should have known better than to have unlicensed employees processing loans.
“They should know that anybody who negotiates a term or talks to a borrower about a loan, they have to be licensed,” she said. Still, sometimes companies don’t realize there is a very concrete line between the duties of a “loan processor” and a licensed loan originator. The MMA, she added, advises members to prevent any such confusion or trouble by getting their loan processors licensed as well, just in case.
Elizabeth Phelan, chairwoman of the Massachusetts Mortgage Bankers Association, said despite these snafus, the majority of the mortgage community had managed to stay on top of the paperwork and keep their licenses in order.
She acknowledged that administrative errors do ensnare otherwise good lenders, but said, “It’s certainly a minority of the overall licensed population.”
