The proliferation of mortgage houses and increase in the number of people involved in mortgage lending has become an issue for state regulators.
In 1990 there were roughly 200 mortgage licensees in Michigan. Today there are 2,925.
“Whenever you increase the volume of activity in any regulated field, you increase the possibility of inappropriate activity occurring just because you have more people doing business,” said OFIS Commissioner Frank Fitzgerald.
What brought about the growth spurt was the availability of money and the ability for mortgages to be written at attractive rates — and that’s something that’s continuing today, Fitzgerald said.
As long as interest rates stay low, there will be a continual flow of applications for mortgage licenses.
Fitzgerald said many people have entered into the mortgage lending business over the last two to five years, but the OFIS doesn’t necessarily have the level of compliance it would like to have.
“What I want to do is reinforce with the people in this line of work that it is a regulated business, that we as a regulator have a very important role to play, and that we’re going to become more aggressive on the examination front, and also eventually on the enforcement front,” he explained.
In particular, the OFIS is trying to increase its systematic examination of independent, or “free-standing,” mortgage companies.
The examination process is the office’s main source of contact with licensees and its primary means of identifying compliance issues.
Frequency of examinations is one of the issues the OFIS faces.
“We don’t have in place at this moment a schedule of systematic, chronological types of examinations for mortgage licensees that we do with insurance companies, credit unions and banks,” Fitzgerald said.
“What I have been working over the past three years to do is try to increase the number of examinations occurring and to establish a more systematic examination basis for mortgage lenders.”
Fitzgerald said the OFIS also wants to be able to respond more aggressively to consumer complaints about freestanding mortgage houses, particularly those that have multiple complaints leveled against them.
Closer scrutiny would be warranted not only for licensees that are generating a lot of complaints, but also licensees that are generating large mortgage loan volumes.
“Nobody should be surprised we’re taking the steps we’re taking, because this is what we do. We’re just going to do more of it.”
Financial solvency matters are a concern to the OFIS, too, but that’s not as much the focus in the mortgage-lending sector as it is in the insurance, banking and credit union sectors, he noted.
With the mortgage licensees, a great deal of it just comes down to the interaction between the company and the applicant, Fitzgerald explained. How is the applicant being treated? Are appropriate disclosures being given to that person? Is appropriate information being gathered?
“It’s very much a consumer-directed view that we’re taking here to make sure that people are being dealt with in an appropriate manner.”
As the number of mortgage houses climbed over the last dozen years, the OFIS hasn’t had a concurrent increase in staff to handle their regulation.
But under the current fiscal year budget, which began Oct. 1, the state legislature has authorized the OFIS to expend an additional $1 million to ramp up examination and investigation activities.
To that end, the office plans to contract with people experienced in mortgage lending regulation to conduct examinations and apply the appropriate laws, Fitzgerald said.
“We’re, hopefully, going to gain final approvals within the state approval system very shortly for that. The contract would then run beyond the end of this fiscal year.
“For the coming 12 months, that’s one of the ways we will be moving more aggressively on this front.”
The OFIS tends to receive more complaints about freestanding mortgage companies than it does about bank and credit union mortgage lending activity.
“There we have a longstanding culture of regulation and regulatory compliance, even though we have chartered more than 30 new banks in Michigan since 1996,” Fitzgerald said.
“There you have people who generally have long standing in the banking community. Even with the new banks, you have a regulatory compliance mentality that goes back a long way.”
The freestanding mortgage companies are newer at the game.
And because of their proliferation, in Michigan as well as other states, regulators across the country are attempting to increase contact with them, he said.
Oftentimes complaints received, or instances of noncompliance identified, aren’t due to maliciousness on the part of the company, but, rather, to a misunderstanding of the law.
“We take those very seriously,” Fitzgerald said. “But we’re also looking for those companies that may just have a culture of noncompliance with the law.”
Could the OFIS reduce the number of potential problems by limiting the number of mortgage licenses available?
Fitzgerald said that within the world of regulation, there are different theories about licensing.
What the OFIS has tried to do is simply maintain high standards for letting people in.
“There are statutory criteria that we are empowered to review when people make application to us, and we have tried to set the bar for entry into this field fairly high with the hopes that we would then have as high a level of appropriate activity as you can possibly have once people begin doing business,” he explained.