WASHINGTON – Idaho and six other states on Wednesday launched a standardized and mandatory process to more thoroughly license and track tens of thousands of mortgage brokers.
The effort could be expanded by congressional Democrats, who are expected in 2008 to continue pushing for tighter national standards.
Mortgage brokers have come under scrutiny in the past year as home loan defaults grew and housing market troubles worsened. Experts say loose licensing standards made it easy for shady operators – including some with criminal records – to work in the business.
While mortgage regulations vary dramatically by state, the new system creates a uniform application for mortgage brokers and a database that banking regulators, and eventually consumers, can use to track down brokers who try to work in one state after being banned from another. Consumers should have access by next year.
In addition to Idaho, Iowa, Kentucky, Massachusetts, Nebraska, New York and Rhode Island are the initial states participating.
In total, 42 state agencies – including those in Washington, D.C., and Puerto Rico – have committed to joining by the end of 2009,
The system is mandatory for brokers doing business in those states, and brokers can be penalized for operating without a license.
A bill passed by the House in November would require all states to participate in the licensing system and would mandate criminal background checks for everyone involved in selling home loans.
The bill would also mandate minimum education standards for brokers and completion of a written test.