Mortgage brokers face industry upheaval

By Kevin Drawbaugh

WASHINGTON (Reuters) - Mortgage broker Richard Hobson was astonished when he set up shop in Seattle last year after learning his trade in the tightly regulated UK market.

It was obvious, he says, that a real estate disaster was brewing. "The mortgage industry here has been an eye opener for me. I am surprised about how lax the system was and is."

But it doesn't take a newcomer to see that the U.S. mortgage brokerage business is facing big changes as a regulatory backlash follows an historic housing market bust.

Congress and the Bush administration are pursuing reform proposals on how brokers qualify to do business; how they get paid; and how much information they share with borrowers.

The full Senate is expected to take up legislation this month that was approved in May by a 19-2 vote in the Senate Banking Committee.

The bill would impose national minimum standards over the existing patchwork of state systems for licensing mortgage brokers and lenders.

To get a license, brokers and lenders would have to be fingerprinted, undergo background checks, prove their record is clean, pass an exam and meet other requirements.

The national licensing provision, part of a broader housing bill expected to win Senate approval, was co-authored by Republican Sen. Mel Martinez of Florida, a former secretary of the U.S. Department of Housing and Urban Development (HUD).

"When you see an industry that's so unregulated that someone can actually steal money from their purported client, something's wrong," he told Reuters in an interview.

The House of Representatives approved a bill in November to require licensing of mortgage brokers and bank loan officers.

And the Bush administration in March called for "strong nationwide licensing standards" for mortgage brokers, stiffer federal and state oversight of all mortgage originators and better disclosure of loan terms to borrowers.

BROKERS ON THE DEFENSIVE

"We absolutely feel that better disclosure and better regulation are important. We're working with everyone we can," says George Hanzimanolis, president of the National Association of Mortgage Brokers.

The association's Web site appeals to members for support, warning that "the mortgage broker industry is being attacked on every front. ... Our industry will be unrecognizable if changes policymakers have proposed are made final."

With more than 50,000 firms and 400,000 employees, mortgage brokers are mostly independent contractors who act as middle-men between mortgage borrowers and lenders.