Md. warns loan officers: Get license

State ready to bust those who try to work without one after Jan. 1

December 22, 2006|By Jamie Smith Hopkins | Jamie Smith Hopkins,Sun reporter

A warning to mortgage loan officers with clever plans for avoiding Maryland's new license law: The state says it's on to you.

The licensing requirement for loan originators employed by mortgage brokers doesn't go into effect until Jan. 1, but the state Department of Labor, Licensing and Regulation is already gearing up to investigate companies that it hears are trying to skirt the new rules.

"We have a list of places we're going to visit shortly thereafter in January," said Joseph E. Rooney, the department's deputy commissioner for financial regulation.

The state has received about 8,100 applications for the licenses. It believes 10,000 to 12,000 people are originating loans in Maryland, and some in the industry think the number is even higher. Rooney doubts those who haven't applied are all planning to quit at the end of this year, even with the business downturn that came with the end of the housing boom.

That's because he's getting tips about firms "boasting" that they can avoid most of the hassle by getting one out of, say, a dozen loan officers licensed, and funneling the paperwork for loans to that single person for signatures after the work has been done.

"That's not going to fly with us," Rooney said. "If people are talking to the public, they need the license."

Loan officers working for banks are exempt. But those employed by mortgage brokers must fill out an application, submit to criminal background checks and - if they've been in the business for less than three years - take a 40-hour course covering regulations, ethics and the like.

It's not cheap. The state charges $300 for a two-year license, plus a one-time investigation fee of $100. The cost of the course can run up to $550.

The Maryland Association of Mortgage Brokers said it lobbied for the law as a way to drum out bad characters and give customers some assurance that the employee looking at their sensitive financial records isn't - for instance - a convicted identity thief. About 7 out of every 10 home loans in the country are originated by a mortgage brokerage, and an increasing number of states, concerned about fraud and predatory lending, are requiring loan officer licenses.

In Baltimore, an epidemic of illegal "flipping" in the late 1990s - in which real estate investors defrauded homebuyers - was aided in some cases by loan officers falsifying documents. And most of the roughly 3,000 written complaints to the state Department of Labor, Licensing and Regulation each year are related to mortgages.

The mortgage brokers association thinks licensing will help, making it harder for problem employees to jump from company to company. It has no patience with firms telling workers to ignore the new requirements - it's among those passing tips to the state.

"What you're getting is a better-educated, more professional loan originator," said Thomas C. Shaner, executive director of the state association.

10 applications denied

Rooney said the state has denied about 10 applications so far, most based on the background checks. One, from a loan officer convicted of mortgage fraud, is being appealed.

Because the application process isn't immediate, anyone who hasn't applied yet won't get his or her license by Jan. 1. The big delay is the background check, which can take six to eight weeks.

The state has issued about 2,100 licenses so far and is adding hundreds to that number each day, including conditional ones to loan officers only waiting on the background check results, but Rooney says the application cutoff for that grace period was last week. Loan officers who waited too long are now getting letters from the state warning them not to accept any new business after Dec. 31.

Not all are listening.

Christopher Cruise, a national mortgage trainer based in Silver Spring who is teaching classes for the licensing process, said some students have told him "flat out, they fully intend to originate loans in Maryland, license or no license." The industry is used to regulators being too busy to keep an eye on them, he said, and so the loan officers like their odds. But he has told them not to expect a slap on the wrist if they get caught.

"They're going to try to make an example of somebody," Cruise said of state regulators.

Facing fines

Starting next month, workers originating loans without a license face fines of up to $25,000 and the possibility of as much as five years in prison. It's a felony offense.

The state and the mortgage broker association have been reminding companies and employees about the law for months - it passed last year - but the requirement is news to some. "I'm still dumbfounded by an occasional response of `what?'" Shaner said. "Well, you're well behind the eight ball, pal: You've got to get moving."

By the numbers

Number of loan officers employed by mortgage brokers who have applied for the state's new licenses: about 8,100

Number the state believes are originating loans in Maryland: 10,000 to 12,000

Date when loan officers must be licensed: Jan. 1

Maximum penalty for working without a license: $25,000 in fines and five years in prison

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