Colorado Association of Mortgage Brokers (CAMB) Position Statement – February 18, 2008 The purpose of this document is to memorialize the Association’s position on several very important state issues facing Colorado consumers and independent mortgage brokers. The CAMB Board of Directors unanimously adopts and supports each position detailed in the statement. Colorado Issues General CAMB is proud of the leadership role it played in introducing Colorado to mortgage broker registration. Having supported licensing and registration for well over a decade, we are pleased to see the June 2006 passage of H.R.06-1161, Mortgage Broker Registration, which took effect January 1, 2007. While CAMB opposed certain provisions of H.R.06-1161 as it was introduced into law, specifically the inclusion of a surety bond which CAMB continues to hold as irrelevant to its intended purpose; CAMB believes the law was needed to protect Colorado consumers from becoming one of two states that could have been a refuge for practitioners who were barred from other states. CAMB believes that the bills introduced into law in June 2007 were generally introduced too early to have allowed appropriate evaluation of the impact of the new legislation and that the bills may not achieve their expressed objectives. CAMB applauds the Director’s decision to appoint a standing task force and urges the Director to continue the current practice of seeking advice and counsel from the group prior to implementing rules. Aspects of the 2007 bills that CAMB supports include: increased regulatory authority and repeal of the FHA exemption. CAMB acquiesced to much of the language contained in S.B.07-085; but opposed the general and most of the specific provisions of H.R.07-1322, S.B.07-203, and S.B.07216. CAMB continues to advocate for and support an independent study to determine the actionable causes of Colorado foreclosure and mortgage loan default issues. Until such a study is conducted,
remedies offered through legislation and regulation have only a coincidental chance to achieve the desired result. And, in fairness to Colorado taxpayers and Colorado licensed Mortgage Brokers the appropriation of over $27 million dollars without a defined, expected, measurable outcome imposes an unfair economic burden on a single industry. Specific Issues Legislation – Definition of a Mortgage Broker, 12-61-902, CAMB continues to believe that the role of a mortgage broker lacks clarity and the definition contained in 12-61-902 perpetuates the misunderstanding by failing to clarify that a mortgage broker routinely deals with more than one lender in arranging a loan as opposed to an employee of a lender who by 12-61-902 is defined as a mortgage broker. Regardless of this objection to the definition CAMB vigorously supports the notion that every loan originator or as defined in Colorado law, every mortgage broker, regardless of their employment arrangement should be required to conduct business in the same manner so that the playing field is level and consumers are equally protected regardless of the business formation in which the service provider works. Licensing required, 12-61-903 , CAMB is proud of its long standing, public support of requiring education for mortgage brokers. With respect to the provisions of 12-61-903, CAMB is actively advocating that the Director of the Division of Real Estate adopt rules that allow for mortgage brokers who have taken coursework and/or that have recognized industry certifications to be “grandfathered” into the January 1, 2009 licensing and to be allowed to forego coursework on all subject matter except specific state legislative and regulatory materials which the Director feels are necessary and would not have previously been available. Additionally, CAMB is advocating that Colorado join other states in allowing reciprocation with respect to education when it is offered through courses delivered by the national association’s network of trainers, using coursework that is accepted in support of state or national certification or pre-licensing or continuing education. Errors and Omission Insurance, 12-61-903.5, CAMB continues to oppose the inclusion of errors and omissions insurance as requisite to obtaining a license to broker mortgages in Colorado. CAMB has been steadfast in its opposition to this financial requirement because: 1) it continues to demonstrate the misunderstanding of a mortgage broker’s role in the housing finance transaction and 2) can only serve to increase the likelihood of frivolous law suits because over zealous individual’s will now see a financial benefit to be gained by litigating. There is clearly no evidence that a mortgage broker’s legitimate activities would lead to financial damages that seem to be anticipated and recoverable through this coverage. As such, CAMB opposes introducing the financial burden of this requirement on Colorado mortgage brokers. However, in as much as CAMB’s objection is unlikely to change the fact, minimally CAMB advocates that there needs to be reconsideration of the coverage so that it may be company level as opposed to individual coverage. This is not an issue of group versus individual but rather what entity purchases the coverage and what a reasonable level of coverage is for the company. There are
virtually no other states that require individual coverage and as such the carriers have no foundation on which to determine appropriate premiums. Carriers have created arbitrary definitions of sub-prime products and are excluding such products from coverage or increasing premiums to a financially prohibitive level for mortgage brokers who are active in sub-prime or reverse mortgages. CAMB supports revisiting this requirement as it exists in law. Exemption, 12-61-904, In as much as the laws now require and/or prohibit certain activities and conduct; CAMB supports an inclusive approach to the law. Every mortgage broker (or loan originator) regardless of their employment arrangement should be required to adhere to the provisions of the mortgage broker law. The exception that CAMB supports would be the requirement for surety bond and or errors and omissions insurance if the legal entity for which the broker worked could prove a financial where with all equal to that created by the inclusion of a surety and errors and omissions. Otherwise, CAMB supports inclusion for education, disclosures and all other provisions of the law focused on creating some level of consumer protection and common consumer experience. Colorado Regulatory Issues General In general CAMB supports the increased rulemaking authority provided under 12-61-901 et. seq. However CAMB may oppose specific components of any rule and will provide a position statement when appropriate. Mortgage Brokers Duty to Respond, effective March 1, 2008. While CAMB generally supports the requirement that mortgage brokers have a duty to comply with demands of the division during investigations of alleged violations of the laws and rules, CAMB opposes the language in this rule that subjects the mortgage broker to disciplinary action when the company for whom the broker works or worked refuses to provide the requested documentation. In most, if not all cases, an individual mortgage broker will not have proprietary access to the list of documents which include applicatio ns, verifications, credit reports and even the HUD-1 from a transaction. To punish the broker because the broker’s company rightfully disallow the broker from maintaining their own individual records is inappropriate. CAMB will continue to request the Director’s reconsideration of this requirement. Prepayment Penalties, effective March 1, 2008. While CAMB, in agreement with the other organizations represented on the Rulemaking Task Force generally supports that prepayment penalties should not exceed the “fixed” period and should provide for a timeframe immediately before expiration for an individual to avoid the penalty, the rule as written goes well beyond these guidelines.
CAMB opposes this rule as it is written on several grounds: 1) imposing this rule affects only
mortgage brokers and does not preclude exempt organizations from continuing to offer prepayment penalties without regard to the rule’s provisions, 2) the rule goes far beyond even the June 2007 Federal Interagency updates on sub prime in that it includes all products whether they are sub prime loans or focused on sub prime borrowers or not, 3) the rule penalizes Colorado consumers or implies a covered mortgage broker should “steer” an individual to a bank to obtain the lower interest rate often associated with prepayment penalties, 4) the rule adopts definitions that are
independent of other national, state or even product definitions and may increase consumer confusion, 5) the rule, as written, restricts consumers’ access to products and presumes the state knows what is best for the consumer.
Division of Real Estate Position Statements Applicability of Colorado Mortgage Broker Licensing Law to Employees and Exclusive Agents of Federal and State Institutions , As indicated in other areas of this document CAMB strongly supports inclusion of every individual who, regardless of how it is defined, brokers or originates a mortgage, in the education and tracking requirements provided for nationally and at the state level. To do any less is to perpetuate an unlevel playing field and to continue to disadvantage both a business segment and consumers. However, CAMB disagrees with the Director’s opinion expressed in the CDRE’s most recent position statement regarding inclusion of the employees and exclusive agents of federally chartered financial institutions. As cited in the Director’s position statement, 12-61-904 (c) specifically exempts --- “A bank, savings bank, savings and loan association, building and loan association, industrial bank, industrial loan company, credit union, or bank or savings association holding company organized under the laws of any state, the District of Columbia, a territory or protectorate of the United States, or the United States, subject to regulation and supervision by a federal banking agency, or an operating subsidiary or affiliate of such entities, or an employee or exclusive agent of any of such entities, including, without limitation, a subsidiary or affiliate of such entities;”. CAMB agrees that 12-61-911(1) is an attempt to include otherwise exempt mortgage brokers in the specific list of prohibited conducts listed in 12-61-911. CAMB further acknowledges that 12-61-911 (m) attempts to create a more inclusive compliance requirement. However, CAMB believes that provisions for federal preemption, as a practical matter, will prevail. As previously stated, CAMB is supportive of initiatives that result in the same requirements for all those who broker or originate. But, again while we may support efforts create a leve l playing field and improve consumer protection by including federal entities and their employees, CAMB questions the statute’s viability if and when enforcement is challenged. As a result we must therefore question the division’s position that it has authority to act based on what may be unenforceable statutory language.
Respectfully submitted on behalf of The Colorado Association of Mortgage Brokers
William F. Kidwell Immediate Past President Government Affairs Chair
Douglas L Braden 2008 President