Why I support a national licensing system for loan officers

Dan Green of The Mortgage Reports blog makes a case for a national licensing system for loan officers in a post on the Bloodhound Realty Blog. He uses his frustrations with the licensing process in Ohio as an example of the inefficiencies, expense and patchwork system that is mortgage licensing. It culminates with him having to fly to Ohio with his business associates for fingerprinting to save 10 weeks on the process.

Dan originates in Illinois, which is also one of the toughest states to obtain licensing in. So I feel his pain. I also happen to agree strongly with him. The mortgage licensing system isn’t just broke, its a first-class train wreck.

Here are the basic problems with it:

The system is state-based so there is no national system of record.
Communication between state agencies is non-existent.
The requirements for each state range from stringent to non-existent.
The licensing agencies are under-staffed, under-funded and severely backlogged.
Multiple licensing agencies exist for each state creating additional confusion.

As a small business owner it makes my head spin trying to keep up with the ever-changing requirements for each state that we are licensed in. In fact, it is the number 1 reason we are not licensed in more states.

It seems like such a common-sense idea to form a licensing agency similar to the NASD. The NASD manages a central repository of all licensed dealers. From their web site:

NASD operates Web CRD^Â®, the central licensing and registration system for the U.S. securities industry and its regulators. It contains the registration records of more than 6,800 registered broker-dealers and the qualification, employment, and disclosure histories of more than 660,000 active registered individuals, making it the world’s largest and most sophisticated online registration and reporting system.

This would be a beautiful thing in the mortgage industry and could work very well for the regulation of non-depository lending institutions (like brokers and mortgage banks) not currently regulated at the federal level.

If I had a wish list it would include:

One set of national licensing requirements for all brokers.
One set of national licensing requirements for all mortgage bankers.
One set of national licensing requirements for all sales people.
One database of record for all brokers and salespeople.
One database of consumer complaints and regulatory action.
A pre-set test for competency.
Continuing education requirements.

While there are many difficult hurdles to overcome to achieve this type of system the benefits could be enormous.

Reduced fraud and fly-by-night brokers jumping from state to state to defraud customers.
Accurate record keeping for all originators and lenders.
Standardized experience requirements for all participants in the market.
One source for consumers to research their lender or potential lender.
Many, many more.