I’ve always thought so and you may say I’m biased since I work for a company that is regulated by Washington State Department of Financial Institutions. At the very least, home owners who have been wronged by a loan originator under DFI’s watch can rest assured that the company has much higher odds of having actions taken. When a borrower contacts me because they want a second opinion or they have a complaint about their lender, the first step is trying to figure out what type of lender they are (mortgage broker, mortgage banker, correspondent lender…) and determine who regulates them. It’s a mess and there are no innocents. Bankers are not more ethical than brokers or vice versa.
Here’s an example, from the front page of this morning’s Seattle PI:
In a typical case in late 2002, state bank examiners believed that National City Mortgage was violating the state’s Consumer Loan Act by charging extra fees on mortgages…when asked to explain the costly “discount loan fees, underwriting fees, processing fees and marketing fees,” National City Mortgage sought intervention from federal regulators, records show.
The investigation was stopped by federal decree….the federal Office of the Comptroller of the Currency wrote National City a letter…saying the state had no right to examine or even visit its offices. Because National City’s parent bank…was chartered with the OCC, the federal agency preempted the state’s authority….
The federal agency didn’t go after the mortgage fee complaint because it had no authority to enforce state consumer protection laws…
Also from this article:
Banks are governed by a patchwork of federal and state laws, which are notably weak at the federal level in areas of predatory lending and consumer protection, according to to law professors, attorneys and other experts. Some states…have passed tougher predatory lending laws with provisions holding Wall Street liable for financing bad loans. But the two federal agencies in recent years have increasingly shielded their chartered banks…from state laws.
What really frustrates me is to hear the media and our elected officials wrongly use the term “mortgage brokers” when discussing the current mortgage crisis we are in. It’s clear that there was not enough regulation and enforcement for all mortgage originators (regardless of type of institution they are employed by).
The federal OCC took about a dozen formal enforcement actions against banks for “unfair and deceptive practices” in the current decade, agency spokesman Robert Garsson said. The other federal agency, OTS, took about half as many, in “the five to six range, OCC Cheif Operating Officer Scott Polakoff said. States…took 3,694 enforcement actions against mortgage lenders and brokers in 2006 alone…
The feds were set up as rivals. Bank oversight is “the only place I know where regulated entities get to pick their regulators,”said Kathleen Keest, with the Center for Responsible Lending.
Last year, in a case involving Wachovia, the Supreme Court ruled that “the OCC has the absolute right to insist on exclusive oversight without states intervening.
According to the Seattle PI article, Barney Frank has indicated he might try to overturn the current system…until then, it’s my opinion that consumers are more protected by selecting lenders who are regulated by DFI rather than relying on the Fed or the banks to look out for them. Our State’s system is not perfect but atleast a consumer can visit DFI’s site and verify on a local level if a loan originator or their company is licensed or has had actions taken against them.
With the recent passage of HR 3221, the SAFE ACT was passed to help protect our nation from unsavory mortgage originators. Once again there are different rules for originators who work for banks and those who work for state regulated institutions. On a comment at RCG, “DFI Examiner” confirmed that “LO’s with FDIC insured banks and credit unions need to register, but they don’t need to be licensed.” Ahh…but that’s a whole post on it’s own!