The financial reform legislation President Obama signed into law during the summer of 2010 focused on preventing future Wall Street meltdowns. By January of 2011, all fifty states must comply with standardized credit and background check procedures required to issue mortgage broker licenses. The guidelines have roots in a 2008 law that was implemented in a handful of states. Smaller, independent mortgage brokers may struggle to comply with new rules that force them to spend time and money on employee screening. However, proponents of the plan view the stronger checks as essential to keeping criminals from using the mortgage industry for illicit profits.
John Gittelsohn from Bloomberg calls out the example of former California mortgage broker Sean McConville. As an unlicensed broker, McConville never had to disclose his prior conviction for armed robbery to his clients. He currently faces 61 criminal counts including grand theft, forgery and elder abuse. Prosecutors allege that McConville and his accomplices offered attractive refinance deals, then forged paperwork to close mortgage loans at significantly higher rates than originally promised.
Unintentionally, stronger screening and licensing procedures for independent mortgage brokers could help large banks. Major lenders already conduct significant background checks for their employees to maintain compliance with other federal rules. Therefore, mortgage specialists working for these lenders don't require additional screening or licensing. Statistics cited by Bloomberg indicate that more than half of the home loans originated during the first quarter of 2010 were facilitated by mortgage lenders exempted from the new, tougher regulations.
As a consumer, you can benefit from these new rules in a few ways:
- You're less likely to become the victim of fraud or identity theft.
- Experienced and established mortgage brokers should have little trouble passing state and federal screenings, pushing fly-by-night operations out of the marketplace.
- Increased overhead among independent mortgage brokers can equalize pricing through stronger competition with major banks.
Requesting mortgage quotes online reduces the amount of work you have to do to find the best deals. It also puts major banks and independent mortgage brokers on a more level playing field. And for consumers worried about the safety of working with online lenders, the new licensing program adds a new level of assurance.