All violations will continue to be Consumer Protection Act violations qualifying for treble damages (awarded after actual damages are determined) and attorney fees. In addition, Congress has considered the Responsible Lending Act, proposed by U.S. Reps. Bob Ney (R-Ohio) and Paul E. Kanjorski (D-Pa.). This would establish minimum, uniform state broker-licensing standards and create a national broker registry to help consumers inform themselves about brokers and to increase oversight by regulators.

What brokers must do

Brokers must reallocate their budgets to:

• Provide increased education for employees and originators;
• Implement companywide programs of awareness and enforcement of compliance requirements;
• Develop and implement effective quality controls that include regular monitoring of loans from origination through funding;
• Periodically conduct audits of loan files and individual originator business practices;
• Develop methods to ensure all loans are properly maintained and reported; and
• Develop a checklist of triggers indicating improper loan-origination and processing activity.

If brokerages do not diligently control the quality and integrity of loans they broker, they will not survive. By drafting an individual safeguards-practices rule, a brokerage can create the atmosphere and discipline necessary to demonstrate its professionalism and to provide a structure for future internal controls.

Brokers can begin by ensuring they comply with federal regulations such as the GLBA Safeguards Rule and FACTA. These rules address protection and disposal of sensitive customer information. It is appropriate to incorporate FACTA's information-disposal requirements into the GLBA and FTC safeguards practices.

Further, the Safeguards Rule requires brokers to: designate one or more employees to coordinate the safeguards; identify and assess the risks to customer information and evaluate the effectiveness of current safeguards; design and implement a safeguard program that is regularly monitored and tested; carefully select service-providers (e.g., escrow agents) and enter a contract with them to implement safeguards; and evaluate and adjust the safeguards as necessary.

The time has come for the mortgage-brokerage industry to advance to the next level of professionalism by demanding more from itself.

John Long is a sole-proprietor attorney who limits his practice to mortgage regulatory compliance law and defense. He selectively represents brokers in Washington state and various other states before regulatory agencies and in defense of civil-liability claims. He has been actively involved in review and analysis of the proposed changes to Washington state's Mortgage Broker Practices Act. Contact Long at john@johnlonglaw.com or (425) 427-9660.

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