SUSHIL TULI
‘A good idea’
With so many mortgage companies in Massachusetts, the state Division of Banks has been feeling a little swamped trying to keep up with regularly scheduled mortgage examinations. And as new companies enter the local lending scene, regulators are concerned about letting them conduct business without being able to check up on them at regular intervals.
“We were finding it was taking longer and longer to get in and do our examinations,” said Steven Cofsky, the DOB’s chief director of mortgage examinations.
The DOB therefore started developing a program that would give it a sneak peek into the workings of new mortgage brokers and lenders.
Targeted Initial Examinations are less time-consuming than full examinations. However, they allow regulators to get a sense of new lenders and correct problems before they become bigger issues.
“You’ve got to invest some time upfront. You get the payoff in the long run,” Cofsky said. “Hopefully we will be able to reduce the number of enforcement actions.”
TIEs went into effect in March when 40 letters were sent out to relatively new mortgage brokers. The letters informed them of the new program and asked that they send a list of the loans they had originated since entering the marketplace. The DOB then requested a handful of files be sent in for review.
In the past few weeks, the DOB has moved onto newly licensed lenders, asking them to do the same.
Eric Nelson, president of Milford-based United Funding Corp., said his company recently received one of the TIE letters. He said he believes the concept will be beneficial to lenders and brokers, as well as the regulators. Nelson also noted that the program can be a good learning experience for participants and an introduction into what the full examinations will be like.
“I look at it as not a bad thing, but something you can use as a tool. I think it is beneficial to anybody because it is educational,” he said, adding that it also helps to streamline the process.
Nelson said he has gone through examinations before under his broker license, but he recently obtained a lender license through the DOB under which he plans to expand his business. However, Nelson said he has not closed any loans under his new license at this point.
During regularly scheduled full examinations, a company’s policies and procedures are reviewed, as are its finances. Interviews also are done as part of the process. Exams can last anywhere from a few days to a few months depending on what sort of issues arise, according to David Cotney, senior deputy commissioner for the DOB.
If the DOB finds any serious problems during a TIE, it likely would expand the process into a full examination, he said.
Among the newly licensed brokers that went through TIEs, the DOB reported only minor violations such as altering the language of the disclosures or leaving parts of it out, according to both Cotney and Cofsky.
“We are looking at a very small sample of loans for consumer protection issues,” said Cotney of the TIEs.
‘Substantial Growth’
Cofsky said different state licenses can carry different disclosure policies so that newly licensed Massachusetts brokers or lenders might not realize they are in violation. He said it is much better for both the licensee and the DOB if a violation is caught early before there is a large volume of files to review and while the issue is still minor and easier to correct.
“This is a volume-driven business. They could have a substantial amount of loans [in the future],” he said. “We will continue to see growth.”
Cotney said the hardest part of staying on top of the examinations is the vast majority of new companies and new individuals joining the profession.
When the examinations were scheduled and conducted in the early years of mortgage companies forming, it was easier for the DOB to make sure it was checking up on everyone in a timely manner. In 1992 there were 100 licensed mortgage companies in the state. Today, there are 1,600, Cotney said, adding that the significant increase would understandably create a heavier workload for examiners. The DOB already conducts 300 to 400 full examinations per year.
“You are talking about substantial growth in the number of entities,” said Cotney. “Our staff has not grown by a rate of 16-fold.”
Cotney said he agrees that putting in time and effort now is expected to help the division keep up with its examination schedule. He said the goal is to do a full examination of every licensed lender and broker every one to three years. But TIEs are expected to help streamline the process in the future.
“If we can get in and do a quick exam after they are newly licensed [it could] stop problems,” he said.
Sushil Tuli, founder of Arlington-based Leader Mortgage, has watched the industry grow. As the oldest standing state-licensed mortgage company, his institution won’t be subject to the new form of exams. However, he said he understands what the regulators are trying to accomplish by checking in with the new players early on.
“It sounds good,” he said. “There are so many mortgage companies and mortgage brokers out there. They are trying to get the files up front. That’s a good idea.”
In addition to the exams for newcomers, Tuli said he hopes to see an increase in education standards for people in the mortgage business. He said initial education requirements to obtain a license and continuing education requirements to renew a license also could reduce problems in the industry, and in turn reduce some of the time-consuming burden of correcting problems or taking actions against companies or brokers who are found to have violations.
