Friday, May 6, 2011

Do You Ever Have the Feeling You're Being Watched?

Yesterday I completed my mortgage call report and submitted it through the NMLS system.  Since this was my first time to complete this particular report, before doing so I decided to take advantage of a training webinar offered by the NMLS system to make sure that I had each field completed properly and that I understood proper submission procedures.  I had registered in advance for the $35.00 training session, and I will say that it was well worth the money because even though the standard form is very easy to complete and basically self-explanatory, the NMLS system is a little quirky and contains some submission glitches I might not have understood without the benefit of the training.  There is still one training session available on May 15 for anyone who would like to participate.  Information about registration is available on the NMLS website.

As part of the SAFE Act signed into law in 2008, all mortgage brokers and loan originators working for brokers (we are now all classified as originators) were required to obtain a national license in order to keep our jobs.  The system was implemented last year, so last year all of us went through a state licensure test, a federal licensure test, a federal criminal background check and a credit check.  We also all had to complete 20 hours of prelicensure continuing education prior to applying for our federal licensure.

Last August as I took my federal test early in the morning, I really thought about how completely ridiculous this whole experiment was.  In the space of a couple of days I took a state test and a federal test in order to be able to continue doing a job that I had been doing for twelve and a half years.  Fortunately, my credit was still good in spite of the difficult times, because if it had not been, poor payment history would have been grounds for denial of my license.  Even though last year was a bad year and money was tight, we found the funds to pay for the continuing ed fees, testing fees, credit check fees and licensure fees. 

Employees of depository institutions did not have to be licensed--just registered.  And they actually do not have to complete the registration process until July.  This too is ironic.  In February I attended an early morning networking event for an association I belong to, and during the course of the event, a branch manager for a major bank stood and introduced her newest loan originators.  One of them was a former borrower of mine who used to work for a small loan company.  This person had always earned an okay living, but his credit was horrible.   And since he had not experienced major life disruptions such as illness or job loss, his credit was horrible simply because he had a long history of not paying his bills.  Once again, I thought about the difference between the standards applied to small business owners and the standards applied to employees of major banking centers.  This individual would never pass the stringent standards applied to mortgage brokers, and yet he is working for a major bank so compliance is not even an issue.

Yesterday, while sitting through the training webinar, I was once again confronted with another example of the incredible discrimination against small business owners that has come to characterize the mortgage lending industry.  Part of the Safe Act requires that licensees submit an unaudited financial statement for review by the regulators.  The financial statement is due 90 days after the company's fiscal year end.  The stated purpose of requiring the financial statement is so that regulators can perform "risk assessment" on the companies they regulate.

To put this requirement in perspective, the trainers said that they expect that 90% of their licensees will be completing the "standard" disclosure form which is for smaller companies that do not sell directly to Fannie Mae or Freddie Mac.  Companies are further differentiated by those with warehouse lines--correspondents-- and those without--brokers.  So the regulators know that many of the companies they have licensed are extremely small.  We all passed FBI background checks and credit checks to get our licenses.  We all had to pass state and federal tests.  We have to have yearly continuing education.  And yet, the regulators need to see our financial statements to perform "risk assessments". 

Mortgage brokers and correspondents are not depository institutions. Our income is fully disclosed, capped under the new Dodd Frank bill, and limited to either commissions paid by our borrowers or commissions paid by our lenders.  The Good Faith Estimates which we issue are now binding contracts; we cannot reissue them with changed origination fees even if the circumstances that would call for our fees to change is completely beyond our control.  The only risk we pose is to ourselves in the form of personal bankruptcy. 

Part of the new Call Report requires that we disclose not only the number of loans we originated and the dollar amount of the loans we originated, but also the exact amount of the commissions we made on the loans for each quarter.  I suppose that these figures are compared with the financial statement at the end of the year.  And if they decide that we are floundering too much financially, I suppose that the regulators can step in and close us down.

Our industry has always held the view that richer companies were better than poorer ones.  HUD exemplified this attitude for many years by requiring that brokers who sold directly to FHA have cash reserves higher than what could easily be afforded by the majority of brokers.  But experience teaches that the wealthy are not necessarily more honest than anyone else.  Remember Bernie Madoff?  And why does a regulator have the right to decide that a company that has not broken any laws, is filing its reports on time, and has no complaints filed against it does not deserve to remain open because it is not profitable?  Only in the strange new world of Dodd Frank does a regulator's opinion of the future of a small business trump that of the owner who is sacrificing to keep it open.  I disagree thoroughly with the Dodd Frank bill's provisions to close down floundering companies that might pose a systemic risk to the financial system, but the idea of shutting down businesses that mainly pose a threat to themselves is ludicrous.

I don't want to sound paranoid, but the whole experience gives me the distinct feeling that Big Brother is watching.

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