Bill Would Rein in Behavior Which Contributed to Global Economic Crisis
TRENTON – Legislation sponsored by Senator Barbara Buono and signed into law by Governor Corzine will curb abuses in the home lending industry which contributed to its collapse and led to the most severe economic recession in a generation. The law mandates that “residential mortgage loan originators,” who act as the primary point of contact for a prospective home buyer, be licensed and subject to educational and criminal background check requirements.
“In order to practice most trades and professions in New Jersey – such as realty, accountancy, and cosmetology, among others – you must be licensed, satisfy educational requirements, and pass entrance examinations. Yet, prior to the enactment of this legislation anyone could pay a $100 fee and call themselves a loan officer,” explained Senator Buono, D-Middlesex and Chairwoman of the Senate Budget and Appropriations Committee. “Purchasing a home is often the largest investment of an individual’s lifetime. Adequate safeguards are needed to ensure that the people and businesses dispensing this advice have the education, character, and financial fitness necessary to offer home mortgage services.
“Past lending practices have been exposed to reveal how all too often professional lenders facilitated home buyers to live beyond their means, in some cases even failing to require income verification. This irresponsible lending directly contributed to the collapse in the housing market and played a part in precipitating the current global economic meltdown,” said Senator Buono. “As we work to address the damage caused by the collapse of our financial system, we must ensure unlicensed lenders are no longer permitted to take advantage of homebuyers who place their trust in them. Through stricter regulation and licensure, we will make sure that the mistakes of the past are not allowed to be repeated.
“Before the bill was enacted, mortgage loan officers, looking to make the biggest commission possible, were rewarded by their management for ignoring a buyer’s best interests,” said Senator Buono. “Through licensure, educational requirements, background checks, and other measures designed to gauge a lender’s financial fitness and character, this new law will ensure that only responsible mortgage lenders are authorized to do business in the Garden State.”
Although mortgage bankers and brokers providing home mortgages were already licensed by stricter State standards, a separate class of lenders, known as loan officers, were only required to pay $100 fee and register with the Department of Banking & Insurance. By acting as a middleman between individuals seeking loans and investors who have the money to lend, loan officers are often the primary point of contact for consumers. In addition, while mortgage brokers and bankers can be personally liable for offering fraudulent loans, loan officers could not be held accountable for their actions prior to the enactment of this legislation.
The bill signed into law, S-470, will set new licensing standards and regulatory practices for residential mortgage loan originators. Under the new law, in order to obtain a license as a mortgage loan originator in New Jersey, an individual would have to complete, or submit to: an application; a background check conducted by both the State Police and the Nationwide Mortgage Licensing System and Registry (NMLSR); pre-licensing education requirements and – in the case of renewal applications – continuing education standards; a written examination; and registration with the NMLSR. Applicants would be required to demonstrate the appropriate character, fitness and financial responsibility, employment by a business licensee, and coverage by a surety bond, and would be required to pay a fee to the New Jersey Department of Banking and Insurance (DOBI) to cover the cost of processing.
Senator Buono’s bill would bring the State into compliance with the federal Safe and Fair Enforcement Mortgage Licensing Act (SAFE Act), which requires all States to have a licensing system for residential mortgage loan originators in place by July 31, 2009.
“The problems with the mortgage industry are not unique to New Jersey, and we’re seeing a nation-wide push to crack down on unfair, unsafe practices and individuals within the industry,” said Senator Buono. “New Jersey went a step beyond the federal SAFE Act, by including a State Police background check and more continuing educational requirements than the SAFE Act calls for.
“Losing a home to foreclosure is painful emotionally and financially,” added Senator Buono. “We must ensure that those individuals preparing and offering an investment carrying so much gravity for a family’s credit history and personal finances are bound by sound laws and regulations. This new law seeks to prevent the unconscionable lending practices which have plagued the home mortgage lending industry and robbed many families of their dreams of owning a home.”