Raising the bar for mortgage brokers

The growth of the mortgage industry through the conversion of large pools of loans to securities has been very successful in expanding home loan opportunities for US consumers. It's clear however that excess capital on an international basis went chasing after relatively high-risk investments during the housing boom. I'm not quite sure who best to license - the pension and hedge fund managers who buy and sell the securities; the stock brokers who make the trades; the agencies who rate the risk; the underwriters who evaluate the individual loans; the loan officers who originate the mortgage and construction loans; the appraisers who work on behalf of the lender; or the real estate licensees who represent buyers.

At the bottom of the food chain is the individual borrower. I'd like to believe that every potential borrower out there brings to the table a modest understanding of finance or money management. Not.

Jim is right. Whenever you ask who is to blame, the right answer is everyone.

This move by Indiana is interesting. Supposedly the state had set a particularly low bar for mortgage brokers, and tightening standards was long overdue. That's fine. It probably also makes sense for states to start imposing regulations that parallel those for the securities brokerage industry--the "know your customer" and "fitness" requirements that prohibit a stockbroker from selling an investment he already knows is inappropriate for his customer.

All that said, look at how many mortgage brokers cheerfully surrendered their licenses in Indiana. That's because they aren't making money anyway. Not only because sales are down. Originators have started to duplicate some of the functions of mortgage brokers--gathering information and communicating risks to borrowers--because they don't trust the brokers to do the job. Why pay twice for the same process to be repeated? Where's the savings in outsourcing to brokers? It's no wonder many originators have simply shut down their wholesale operations and have taken the entire business in-house.

Which means, new licensing requirements or no, most mortgage brokers are going out of business anyway.

Jim, it is clearly where the American education system has failed. I find it amazing that I had to have two-years of a foreign language, but no household finance requirement to graduate high school. Every student should learn about credit, banking, retirement planning etc... even if in the most general way.

After all the recent news, I still have buyers that come to me and have no idea about mortgages and try to squeeze into properties that they have no business buying. Fortunately now, the lenders are saying no. Otherwise, they just don't believe me when I tell them like it is...

I knew it was just a matter of time that MA would begin to license Originators.

Anyone remember the late 1980's then the early 1990's? I do. Back then, the last finger that got pointed to was the appraiser. And interestingly enough, they were licensed shortly thereafter. It only makes sense that the Loan Originator (who for the most part are the one's Really structuring, what is for most, their largest financial investment) be licensed as well.