Commentary: Licensing mortgage lenders could hinder healthy competition

The issue of licensing mortgage lenders in the state of Colorado has been around as long as I can remember. The Colorado Mortgage Lenders Association has been working with the Colorado legislature since 1956 on various aspects of the mortgage lending industry. Over the years, the Colorado legislature has not supported any type of legislation that protects the interests of a trade association, industry or company.

Then why does the issue of licensing mortgage lenders continue to be in the forefront of some mortgage trade industries? I believe it is for several reasons:

o Protecting consumers from fraud and predatory lending tactics;

o Raising the level of professionalism within the mortgage lending industry;

o Keeping the “bad guys” out of the mortgage lending industry;

o Protecting the Colorado market from out-of-state lenders;

o Establishing a standard for entry to the mortgage lending industry in the State of Colorado.

The state of Colorado has legislation passed in 2002 The Colorado Consumer Equity Protection Act that offers consumer protection, backed by aggressive enforcement, for those individuals convicted of fraud in relation to the mortgage lending industry. Additionally, there is licensing of supervised lenders that make second mortgages, other junior lien loans, home equity loans, and first liens on homes owned free and clear for non-acquisition purposes where the APR (Annual Percentage Rate) exceeds certain rate triggers.

The level of professionalism within the mortgage lending industry is not raised by licensing. Companies and individuals that promote licensing for this reason are looking for someone else to take over their role in educating their employees and themselves in the mortgage industry. Colorado Mortgage Lenders Association has created a Certified Mortgage Lender (CML) designation that requires a minimum level of education and employment in the mortgage industry.

Keeping the “bad guys” out of the mortgage industry doesnt happen with licensing. If the “bad guy” wants to make fraudulent or illegal loans, they will do it no matter how much licensing and regulation exists. The states that have licensing, i.e. California, New York, Arizona, have many instances of the “bad guy” taking advantage of the consumer.

The role of government is not to restrict trade in the state of Colorado. The mortgage industry in Colorado is represented by the majority of the national lenders along with many state and local lenders. Healthy competition allows the best products and price to the consumer, along with responsive customer service. The consumer should be the ultimate judge on who they want to do business with.

Establishing a standard of entry to the state of Colorado, again, may prevent the consumer the ability to have access to the best mortgage products available for them. The majority of the agencies, i.e. FHA, VA, have minimum standards that must be met to do business with them. Many of the mortgage investors also have minimum standards in order for a mortgage lender to place loans with them.

There are many laws and regulations in place for consumer protection today, i.e. The Real Estate Settlement Procedures Act (RESPA), The Equal Credit Opportunity Act (ECOA). Over my 25-plus years of mortgage lending experience, the surge of laws and regulations to protect the consumer has only increased the cost of doing business to the consumer in order to “protect” them. The costs on a HUD settlement statement today have increased because of existing laws and regulations.

Asking the state of Colorado to license the mortgage industry is not the answer for the consumer. As evidenced, there is enough state and national laws and regulations to protect the consumer–enforcement now is the key for those laws and regulations. Any additional regulation must benefit the consumer; if it doesnt, then why have it? We cant enforce the majority of the regulations we have now due to budget constraints.

The consumer can make the choice of whom they want to do business with. They can shop for rates, fees and service. Healthy competition keeps the costs down to the consumer and allows home ownership opportunities. The consumer can call a Consumer Help Line (1-800-611-4832 ext. 4) that will answer questions about the mortgage industry in Colorado, including servicing questions for the national lenders.

Licensing does not educate the consumer on who they should do business with. Rather, it may prevent them from achieving their dream of homeownership. The question now becomes—How do we increase homeownership? THAT is the question.

Julie Piepho, CMB, is president of Milestone Leadership Consulting and is on the board of directors for the Colorado Mortgage Lenders Association. She has more than 25 years of experience in the mortgage industry and provides leadership consulting and sales training for organizations and individuals. She can be reached at (970) 484-9520 or julie@milestoneleaders.com.

on Facebook on LinkedIn