Mortgage brokers accustomed to examining the credit history of loan applicants soon may be subject to credit scrutiny themselves.
Thousands of loan originators who don’t work in banks may have to turn over their credit reports to the state and meet a minimum credit-history standard to be considered for their licenses.
The Division of Banks is urging applicants to “strenuously self-test” to make sure their personal financial history meets the new standard, which was proposed on April 24 and will be open for public comment through May 23.
But Kevin Cuff, the executive director of the Massachusetts Mortgage Bankers Association, called the proposed rules “credit profiling” and said they discriminate against people who work for non-bank lenders. Loan officers who work at banks are exempt.
Similar credit soundness standards have long been in effect for all Division of Banks licensees, said the agency’s chief operating officer, David Cotney. But licensees under the purview of DOB currently all are companies, including mortgage broker and lender firms, debt collectors, check cashers and wire services, among others. Under state law passed in November, licensees will include individual loan originators for the first time on July 1.
Cotney said that the new credit standards will not be in place by the time the division grants its first individual loan originator licenses.
DOB has never codified creditworthiness rules, Cotney said. But because the agency anticipated that up to 25,000 originators might apply for the newly required licenses, it decided to create a standard set of rules.
Still, the number of people seeking a license may not be as high as anticipated even a few months ago, he said, noting that market conditions likely will curtail the number of applicants considerably.
Slightly fewer than 2,000 people have submitted applications to date, he said.
Under the proposed rules, any outstanding lien, unpaid collection, charged-off account, or current delinquency of 60 days or more past due that shows up on an applicant’s credit report, with no documentation showing the amount is in dispute, will result in a denial of license.
Three or more 30-days-late items, two or more 60-days-late indicators, one 90-days-late flag or any account that went to collection and subsequently was settled will result in a similar application denial unless a satisfactory explanation is provided.
Other items appearing on a credit report, including anything “displaying a pattern of late payment delinquencies,” repossessions, satisfied tax liens, defaults on government-sponsored or student loans, foreclosures or bankruptcy petition filings, also will be considered during the application review process.
Generating Heat
Cuff said he would find it acceptable if patterns of late payments disqualified an applicant. But he said if some credit glitches automatically result in license denials, it could “wipe out one-third to one-half of the industry.”
“Fifty percent of the marriages in this country end in divorce,” Cuff said, and many people involved in the dissolution of a marriage go through financial difficulty.
With that alone in mind, he said, some of the items that might automatically disqualify an applicant seem unnecessarily harsh.
Division of Banks Chief Operating Officer David Cotney said his agency expects “a number” of similar comments will come in from other professionals in the mortgage brokerage industry.
But he said the standards are in place for good reason: to instill public confidence in industries that deal with the public’s sensitive financial information.
Richard Shapiro, a principal at Asset Mortgage Group in Natick, said he glanced over the Division of Bank’s draft “Standard of Review” document when he received it last week, but set it aside after quickly determining he and his staff would meet the standards.
“I understand why you want to have people with good backgrounds,” Shapiro said, adding that he thinks the efforts will make the mortgage business “a little more professional.”
Would-be licensees who were working as originators before Nov. 30, 2007, must apply for their licenses by May 28 and pay a $500 application fee. Those who first began working after that date must apply by June 30.
Licensees also must complete a residential mortgage lending course before becoming licensed, or before Sept. 1 to maintain their license.
Licensees must apply online through the National Mortgage Licensing System, a national lender and broker licensing system of which Massachusetts is a founding member. Seven states currently take part in the new system, although at least 40 have committed to doing so eventually.
All licenses go into effect on July 1.
Originators who do not have a license by that date no longer will be allowed to originate loans in Massachusetts.
Cuff, who has discussed his concerns about the draft credit standards with Division of Banks Commissioner Steven Antonakes, said he is still hoping changes can be made to the proposed rules.
“This proposal has generated as much heat from our membership as [Attorney General Martha Coakley’s consumer protection regulations, implemented in January],” he said. “On that, we felt we made some headway.”
