A LICENSE TO LEND
The long arm of state licensing laws is reaching out further and further into the mortgage banking business.
Ten years ago, when only 12 states had mortgage banker licensing laws, the licensing process was fairly straight-forward. A company qualified by paying a modest application fee and providing a state agency with some general background information about its principals. Occasionally, a small surety bond was required.
During the 1980s, the number of states that licensed mortgage bankers doubled to 25. In addition to the application fee and surety bond, some states began requiring entrance examinations for mortgage bankers or brokers and investigations by the state concerning the applicants' histories and the public need for their services, minimum net worth and detailed reports on the applicant's business practices.
Today, three quarters of the states license mortgage loan companies and mortgage brokers. Thirteen states license loan servicers. The impact of these licensing laws on the industry has increased dramatically, and the effect, financial and otherwise, on individual companies has been significant. This article will explore the changes in the scope of state-licensing laws for mortgage bankers and brokers and will summarize the actual costs of obtaining and maintaining licensed status.
Table 1 presents a comprehensive breakdown of state-license-related costs and can be used as a basic blueprint of what a nationally active mortgage company can expect to pay for required licenses and bonds. As any controller of a multi-state lender will attest, in recent years these fees have increased unremittingly. State licensing agencies can provide application forms, bond forms and additional information concerning the licensing and examination process.
Rationale for more regulation and higher fees
Ironically, as the mortgage industry went into a downtown following the real estate slowdown of the late 1980s, the amount of state regulation of mortgage lenders went on the upswing. In part, this is due to the "lag factor" that is apparent in the timing of state regulatory and legislative action. As consumer complaints in the mid-1980s about poor treatment by lenders on a variety of fronts slowly filtered up to state legislators and regulatory officials, the state government authorities responded accordingly.
In addition, following the "go-go" years in mortgage banking (and financial services in general), there emerged new players in the market-place, new markets for loan products, technological advances in the industry and a raft of previously unknown practices in the increasingly sophisticated mortgage finance business.
More recently, the savings and loan crisis has also been the catalyst for many in government to view even more seriously their role in protecting the public from potentially...