Mortgage Bankers vs. Mortgage Brokers

Dear Ms Reagor:

Thanks for the article on Sunday in the Arizona Republic, Feb 2007, regarding Eagle First Mortgage company’s closure. I’m glad to see bad apples weeded out. Although, I’m sure there are folks that worked there that we’re doing anything wrong who now have to look for new jobs. My company is called GetPrequalified.com LLC and I am the “Responsible Individual” for our mortgage broker license. Our company is committed to first time home buyers and helping folks prepare their financial house in advance of buying a home. I have been in the mortgage business for 11 years and have served on several local and state mortgage boards in Pennsylvania over the years prior to my moving here to AZ in early 2004. I am passionate about our industry being accountable for how consumers are treated during the home buying and refinancing processes.

In your article from this past weekend you state: “Legislation recently was introduced in Arizona to license all loan officers and originators to help crack down on bad loan and mortgage fraud.” You probably know this already, but the bill is HB2320. This bill, HB2320, doesn’t quite get the job done that it is intending to accomplish. Simply put, this bill only requires the loan officers and originators of mortgage brokers to get licensed; it does not call for the licensing of loan officers and originators of mortgage banks and other lending institutions.

Mortgage bankers are glorified mortgage brokers. Essentially the only difference between mortgage bankers and brokers is that mortgage bankers are required to have a higher financial net worth; but the educational and experience licensing requirements (3 years mortgage experience, 24 hours of class and take the AZ State test) are the same for either license type. Other than that, we operate and conduct business similarly. In fact the current President of the Arizona Association of Mortgage Brokers is the owner of a mortgage bank.

MANY of the most egregious violations that HB2320 is trying to fix are committed by employees of companies that are licensed as Mortgage Bankers or aren’t licensed in Arizona at all. I have heard from talks given by Department of Financial Institutions Superintendent Felecia Rotellini that complaints to her office about Mortgage Bankers outnumber the complaints against Mortgage Brokers 2 to 1. Mortgage Brokers account for about 60% of all the loans done in this country. This statistic has been the case for as long as I have been writing mortgages.

Every study ever done shows Mortgage Brokers as the lowest cost of all mortgage originators. My company, as with other mortgage brokers in the area, often compete head to head with the big mortgage bankers and federally chartered banks and very often we beat these companies not only in rate, but in “lender” fees. This is in spite that under the current federal laws, mortgage brokers have to disclose every fee they make, which includes what is called the Yield Spread Premium which is associated with the interest rate that a borrower pays for their mortgage. Mortgage banks and other banks don’t have to disclose this ever during the mortgage loan process.

Every mortgage loan originator no matter where they work is focused on the interest rate that they sell and/or a combination of origination fees in the form of points to make their salary and/or commission. Mortgage bankers and loan officers working at banks don’t have to disclose this fee to the buying public. Yet, mortgage brokers are disclosing all of their fees and still providing in general lower fees and the majority of the loans written for homeowners. These are good things for the home buying public. Mortgage Brokers have lead this country to its highest level of home ownership in history.

Other than making it harder and more expensive for Brokers to do business, this bill would accomplish very little. It gives those bad apples who are originating loans an opportunity to hide under the licensing of a Mortgage Banker. You speak about this directly in your article when you wrote: “Those employees are not licensed and could get jobs at other mortgage firms. So could Sanchez, as long as he does not apply to be a broker again.” This current legislation proposal will encourage the bad apples to migrate to mortgage bankers where they can hide.

A little history on this bill…the head of the House Rules Committee district includes the Countrywide (a nationwide mortgage banker) call center in Chandler that reportedly employs 4000 originators (they are looking to expand to 10000 in the near future). He is listening to their needs and desires pretty closely. They didn’t like this bill when it was first introduced as it called for all originators to get licensed and their originators work in all 50 states from that location. If every state had an L.O. license they would need 200,000 licenses for that one facility! They support a national registry or licensing of originators which isn’t a bad option, but will likely take a long time to implement. The bill has been changed from its original form to exclude Mortgage Bankers. Additionally, the AMLA, the Arizona Mortgage Lenders Association didn’t like this bill when it was originally introduced because it required their constituents to be licensed as well. Mortgage brokers of all the lending institutions and have continually suffered a barrage of discriminatory attacks on their existence such as this amended bill that’s being sent through the house at this time. Yet, we provide most of the loans and get less complaints than those who attack us.

The few people who amended this bill to its current condition apparently were influenced by a similar bill in Nevada that started with Mortgage Brokers being the only folks to have individual licenses for their originators and was amended to include Mortgage Bankers two years later.

Reportedly, the NV mortgage bankers got in trouble for employment ads that basically said, “come to work for us, you won’t have to put up with all that education and licensing crap.” Ultimately, the ads got the bankers in trouble with their regulator and they were forced into being covered by the regulation.

But, how many Nevada brokers went out of business in the 2 years because they couldn’t hire a good originator? Also, how many consumers were under served during those two years while their bill was altered to include everyone who originates residential mortgages?

Why would the AZ State Legislature wait to include everyone who originates residential loans for its constituency? Seems like politics to me versus serving the people that the Legislature represents. Let’s get everyone licensed now.

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