What should loan officers' duties be?
Some lawmakers, industry representatives think originators should be held to tougher standards

STEVE LAW
November 19, 2007

Should a loan officer's responsibility to customers be akin to a Realtor? A lawyer? An investment adviser? A used-car salesman?

The duties and proper role of those who offer mortgages lie at the heart of the subprime-loan and related lending crisis sweeping the nation, according to some industry representatives and lawmakers trying to reform Oregon home-lending practices.

"Where this has gone horribly wrong is that many of the mortgage originators have no accountability or responsibility after the documents are signed," said Sen. Ben Westlund, D-Tumalo, who is spearheading a legislative effort to reform home-lending practices. Many loan officers make their money on fees by arranging loans, and then the loans are packaged and sold on Wall Street.

"If the clients can't pay," Westlund said, "it's no skin off of their nose."

Industry representatives on Gov. Ted Kulongoski's Mortgage Lending Work Group propose a new licensing plan for loan originators. That would allow "bad apples" in the industry to be weeded out, and give the state more license fees to hire more regulators.

"We already have regulations that address misrepresentation or fraud; what we need is more examiners," said Eric Wiley, the chief operator officer of Pacific Residential Mortgage in Lake Oswego.

Jason Hillman, the lending manager for Mortgage Design Group in Tigard, said loan originators should be "bonded," akin to construction contractors. Under bonding, a professional buys insurance, and that creates a potential pool of money that can be tapped to pay people who were ill-served.

Hillman said Oregon makes it too easy to enter the field, mainly requiring 20 hours of continuous education every two years. The state of Washington, in contrast, requires a test to enter the field, and the study guide is 720 pages long, Hillman said.

Some in the industry say the market and federal authorities are providing all the reforms needed to solve excesses from the subprime loan fiasco. They resist any notion that they have "fiduciary" responsibility to the client, because they have to represent the lender providing the money for loans. A Realtor hired by a home seller has fiduciary duty to the seller, who provides their commission. The same legal responsibility goes with lawyers and other professionals.

Westlund has hinted that lawmakers may go beyond whatever consensus emerges from industry representatives in the governor's work group.

"The agents or mortgage brokers need to be held to a fiduciary standard, where it is not only in the client's best interest but the mortgage broker's best interest to act in the best interest of the client," Westlund said. "I think the mortgage brokers ought to be held at the same standard as the real estate brokers. It's the same transaction involving the same property."