Tougher standards for lenders would benefit homebuyers

WITH HUNDREDS of unregulated lenders making mortgage loans in our state, it would be wise for lawmakers to require them to be licensed and meet other standards to protect homebuyers.

The biggest purchase most of us will make is our home. In recent years, the mortgage industry has seen an increase in competition as well as a loss of quality controls, creating an atmosphere in which risky loans far too often slide through. Those and other conditions, along with the fact that oversight is limited, can lead to unscrupulous lenders with little or no experience misleading, and preying upon, borrowers.

South Carolina, once among the FBI’s top 10 “hot spots” for mortgage fraud, should do all it can to make sure consumers are protected. Better regulation would help protect homeowners from costly, high-risk mortgages as well as identify and prosecute bad lenders. As it is, lenders can come into our state, and we know very little about them until it’s too late.

The South Carolina Mortgage Lending Act, which the Senate approved Tuesday, would be a continuation of efforts begun several years ago to protect people’s homes and rein in predatory lending and mortgage fraud. In 2003, lawmakers adopted an anti-predatory-lending law to protect consumers against high-cost mortgage loans. In 2005, a law went into effect requiring originators for mortgage brokers to be licensed and meet minimum standards. The proposed law would enhance standards for brokers.

Currently mortgage bankers — the more appropriate term is mortgage lenders — are not required to be licensed. Mortgage lenders don’t carry deposits as regular banks do, and use their own money to extend loans. Mortgage brokers connect consumer with lenders. There are about 300 mortgage lenders in the state that would be affected by this legislation.

The bill approved by the Senate would strengthen character and fitness requirements by requiring national criminal background checks and credit reports. South Carolina and Indiana are the only states that don’t require mortgage lenders to be licensed.

Among other things, the bill would require a license for mortgage lenders and their loan originators, pre-licensing education and testing, federal background checks, and annual continuing-education instruction. Also, mortgage fraud would be a crime that carries stiff penalties, and companies would have to submit regular reports to the Department of Consumer Affairs to ensure compliance with federal and state laws.

Some large mortgage lenders, such as CitiFinance, Household and Wells Fargo, are overseen by the Board of Financial Institutions. They too would be required to face background checks and testing before receiving a license. Frankly, these lenders should be regulated by the more effective Department of Consumer Affairs, just as the other lenders would have to be.

The lack of licensing and standards for mortgage lenders can’t be blamed for the entire subprime mortgage crisis. But tougher standards would help keep more South Carolinians from taking out the kinds of risky loans that taxed many financially, ending in foreclosure for far more than we can or care to number.

The House should follow the Senate’s lead and approve this legislation.