Yes, Let’s Fingerprint Loan Officers

by Peter G. Miller
June 5th, 2008

Tyler Belong asks Should We Fingerprint Loan Officers and suggests that such an effort would be expensive and unnecessary.

Tyler says that under a proposed nationwide licensure program, loan officers would be fingerprinted. He objects to this for two reasons:

First, “the proposed identification system is not going to stop loan fraud. It is not going to stop bait and switch in the lending industry. And, it is not going to stop borrowers from being duped into signing onto a loan (or loans) that they don’t understand. These practices will continue, in substantially the same volume, regardless of whether the FBI has fingerprints.”

Second, if the program is passed on Congress it “will likely produce very few results, while causing most everyone in the loan origination industry to get fingerprinted and have personal data submitted to federal regulatory agencies, at an enormous aggregate financial cost.”

Right now we have no federal licensure system for lenders and the results are fairly obvious: Billions of dollars in losses, declining home values nationwide and serious questions about the lending system and Wall Street.

Licensure should be seen as a first step on the road to what is really necessary: a fiduciary obligation requiring lenders to get the best possible rates and terms for borrowers. Lawyers and real estate brokers have fiduciary obligations to clients and there is no magical reason why lenders can’t join them.

As to the matter of cost, lenders have money — not as much as they used to have but huge sums by all normal standards. A just-issued report by the FDIC found that “commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported net income of $19.3 billion in the first quarter of 2008, a decline of $16.3 billion (45.7 percent) from the $35.6 billion that the industry earned in the first quarter of 2007. In releasing the latest results, the FDIC cited higher provisions for loan losses as the primary reason for the drop in industry profits. The size of the earnings decline was mainly attributable to a few large institutions, but more than half of all insured institutions (50.4 percent) reported lower net income in the first quarter.”

Maybe lenders wouldn’t have so many losses if loan officers were licensed, bonded, educated — and fingerprinted.

The real issue here is not cost or inconvenience. If loan officers were licensed it would then be possible to see who actually originated mortgages that failed, even after such loans were sold and re-sold on the secondary market by including a loan officer ID number with each mortgage. Those loan officers could then speak with law enforcement officials in cases where loans were found to be fraudulently underwritten and originated.

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This entry was posted on Thursday, June 5th, 2008 at 12:12 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

One Response to “Yes, Let’s Fingerprint Loan Officers”

  1. Tom Burris Says:

    I was fingerprinted for my Texas License. I fail to see how it curbs fraud.

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