As state governments struggle to balance their budgets, more and more are turning to consolidating the entity that regulates their mortgage originators into other departments. The latest is now California, following examples set in New Jersey and New York, among others.
In the latter two states, the banking department oversaw all aspects of the mortgage process; they are now combined with their respective insurance regulators.
Things are different in California. The Department of Real Estate oversees mortgage brokers under the same licensing as real estate brokers.
The Department of Corporations oversees mortgage bankers.
In a roundtable discussion held with the executive committee of the California Association of Mortgage Professionals at its annual convention in Newport Beach, the reorganization of DRE and how it would affect the mortgage broker community was one of the main topics of discussion.
National Mortgage News associate editor Brad Finkelstein met with CAMP executive committee members president Fred Kreger, American Family Funding, Santa Clarita; president-elect George Duarte, Horizon Financial Associates, Fremont; vice president-government affairs Michelle Velez, Partners Mortgage, San Jose; and vice president-education Ben Ramos, First Priority Financial Inc., Nipomo.
The group met as continuing concerns about the future of the wholesale mortgage business are being aired.
Wells Fargo, the nation’s largest wholesaler, has announced
Since the mortgage crisis started in 2007, tens of thousands of mortgage brokers have left the business and many small brokerages have folded, with “net branch” operations becoming more popular.
Recently there has been an uptick in the number of mortgage brokers, a hopeful sign but one that has been offset by Wells’ surprising backing away from the wholesale mortgage space.
California has been one of the states most deeply hurt by the mortgage retrenchment.
FINKELSTEIN: In Gov. Jerry Brown’s most recent budget, the Department of Real Estate was reorganized and placed under the Department of Consumer Affairs. How will that affect mortgage brokers in the state?
KREGER: Our biggest concern was to ensure that the state’s recovery fund was intact. What we were concerned about was with California’s financial issues, that they were going to look at this fund as a money grab. They were going to put this into the general fund and use these funds and all of us who are originators are left holding the bag and because of the SAFE Act, we would have to post a (surety) bond. And so, we were assured when we gave testimony to the Little Hoover Commission that this indeed was going to stay intact. The second issue was that the DRE was a self-funded entity. It has so many different types of layers, including enforcement. And let’s face it we can’t regulate ourselves. We have to work with those regulators to ensure that enforcement happens, to ensure that the bad actors don’t come back into this industry. And that was one of the biggest that we were concerned about. If you are going to move bureau and consolidate it, please move it over as one entity, instead of consolidating with everybody else. (Editor’s note: The appraisal regulator was also part of the consolidation proposal.) That was the other piece of the puzzle. And quite frankly, I’m OK with it, because if it is saving California money, I’m good with it. Just be sure that you don’t have unintended consequences, of after moving it forward, six months down the line you realize “no, this wasn’t a great idea.”
FINKELSTEIN: Speaking of DRE enforcement, on Aug. 6, the agency put out a press release stating in the past fiscal year (ended June 30), it had revoked a record number of licenses. The DRE license covers both mortgage brokers and real estate brokers and the release didn’t note which business saw more revocations, but is this a good turn of events?
KREGER: When you look at how they are revoking and why they’re revoking—obviously there are some issues and I didn’t see the details about them—it means they still have teeth, and I’m good with that. We were trying the DRE a little more teeth in terms of enforcing bad actors—even when they are being investigated, how do you stop them immediately if they are actually doing harm to the public. That was a bill floating around last year that would have allowed something almost like a cease and desist order if the public was harmed. I think that is good thing; they are going through the investigation process, but they are still doing harm to the public. There is a balance act that needs to insure that’s attacked. That is one of the biggest things we’re always concerned about, which is one of the reasons why we have such great working relationships with DRE and the Department of Corporations (which also oversees certain mortgage licensees).
RAMOS: The DRE puts out a monthly newsflash about fraudulent operations, and this is very good. California still has a good measure of fraud as well as Florida and states like that especially among the Hispanic communities. There was a lot of taking advantage of these customers. There are a lot of bad actors still out there and the public notices are about what laws they are breaking. It is a service to everybody. I’m glad to see that. I read the monthly newsletters and it is amazing the things which are still being done here, especially loan modifications by people who are not licensed, not brokers, not attorneys, but they are still collecting fees in advance. We see the law cited on the DRE website that they are breaking. It is a good thing; it is a good public service. I agree we have a good relationship with the DRE and we don’t want to lose that.
VELEZ: I was going to say the same thing. I read the notices to see if I knew someone and there was only one time ever.
RAMOS: I got an email from a net branch, (offering) 100% commission, in fact it was right here in Newport Beach. I went to the website and I was amazed to find the notice online of the legal action against them and different types of fraud that (allegedly) were being committed. They were using unlicensed branch managers, they were selling homes from underneath the landlord and tenants, telling people these were repos and telling the tenant to pay the money to them. It was amazing all of this was being done under one roof. This is still going on, this is still very pervasive in our neighborhoods.
DUARTE: When the governor’s proposal for the DRE first came out, we had some concerns. But once the main issue of the recovery fund got addressed, we felt better about it. Plus it was a great opportunity for us to work more closely with the California Association of Realtors, which is a huge whale in this marketplace. We have a lot of commonality of interest with them by virtue of having our real estate licenses. California is the only place in the country where you can do both real estate and mortgage loans (under the same license). I do that myself, I am a Realtor and a mortgage broker, and I vigorously cherish and defend that right to do so. It is a great opportunity for service to the consumer. One of the great sports of us licensees is to the look at that email that the DRE sends every month and review it for the enforcement actions. As Ben said, a lot of the enforcement opportunities are in loan modifications, but there is a whole hodgepodge menu of very creative things that people do to consumers. And it is nice to see that the DRE is stepping up their enforcement.
FINKELSTEIN: Another thing that was mentioned during the opening session is that the mortgage brokers have been invited back to the table with legislators and regulators, state and federal. They again want to hear the mortgage broker’s opinion.
KREGER: It’s nice to see the tables have turned. We’ve seen this over the last 12 months. I think they finally realize that we are boots and ears on the ground. We are the individuals that meet with their constituents. It’s more refreshing to them as opposed to some legal scholar who comes and says, “In theory, if this were to come into effect, our analytical statistics tell us, that it represents 23% of XXX.” That doesn’t matter. What really matters is Mr. and Mrs. Homebuyer that we meet on a daily basis. This is exactly what is happening today that is effecting Mr. and Mrs. Homebuyer. We were all upset that the CFPB came into effect and now we are at that next stage of acceptance. Now that we accept that yes there is indeed one agency that is going to oversee mortgage lending, I think we’re OK with it. We can go to one entity have a dialogue as opposed to spreading our resources around and going to 10. The dialogue has begun. It’s going to be an evolution on how this relationship occurs. There is the regional director, Edwin Chow, who we have created some great relationships with. He has volunteered to speak directly (with CAMP). He doesn’t want to do live webinars. He doesn’t want to do taped speeches. He wants to interact with the various people that originate loans on a daily basis.
