Officials aim to rein in mortgage brokers

The state will oversee a new task force that will try to agree on new industry regulations

The proliferation of new mortgage brokers and solicitors in Hawaii, whose numbers are estimated to have grown by about 30 percent in the past year, has sparked discussion about industry regulation and led to the creation of a task force.

Overseeing the task force, which will hold its first meeting next week, is the state Division of Financial Institutions, the agency that regulates the mortgage lending and banking industry. In Hawaii, as in many states, the mortgage lending industry has few regulations beyond filling out an application and paying a licensing fee, said Nick Griffin, commissioner of the division.

TASK FORCE TO DISCUSS REGULATION The Mortgage Brokers Task Force, which will hold its first meeting June 8, will be made up of 16 representatives, drawn from the following groups: » Hawaii Bankers Association » Hawaii Association of Mortgage Brokers » Mortgage Bankers Association » Hawaii Financial Services Association » Legal Aid Society » Hawaii HomeOwnership Center » AARP » Better Business Bureau » State Division of Financial Institutions » Independent mortgage brokers

"You wouldn't want a doctor to do heart surgery on you that hadn't picked up a textbook in the past 20 years and hasn't kept pace with the industry -- it's the same for your mortgage broker," Griffin said.

Yet in reality, Hawaii mortgage brokers and solicitors, who act as agents to bridge the gap between lenders and borrowers, pay little more than $85 to $320 in professional licensing fees annually for a pivotal role in the biggest purchases most people make.

Hawaii's pricey real estate market, coupled with the 1999 repeal of a law that had required bankers and brokers who did business in the state to have a physical office here, has led to incredible growth within the industry both in sheer numbers of lending professionals and in complaints.

"We've been talking very seriously about regulating the industry for the past decade," said Steve Higa, president of the Hawaii Association of Mortgage Brokers, whose membership grew about 10 percent last year.

As of the end of last year, the number of people granted either a brokers or solicitors license in Hawaii had increased to 4,575 from 3,503, a 30 percent jump from the year before.

But while the Hawaii's mortgage lending industry historically has supported regulation, there's been a wide range of opinions about what those requirements should be, Griffin said.

"The lending industry is big business in Hawaii and ranges from large companies to people working from home or out of their cars. Understandably, there is a wide range of thoughts about what the regulatory framework should be for this industry," he said.

Regulatory legislation was proposed in both 2005 and 2006, but failed because it did not have consensus, Griffin said.

The task force, which will consist of mortgage lending and banking professionals, consumer advocacy groups, industry trade organizations and regulators, will discuss and consider a regulatory framework for the industry. Some of the recommendations on the table are requiring background checks for mortgage solicitors and brokers, testing, ethics training and continuing education, Griffin said.

"The bigger firms already do this; quite frankly, it's good business," he said. "The well-trained employee probably provides more effective customer service and is able to discuss a wider range of products."

Most of the mortgage lending industry isn't opposed to increased regulation as long as it does not lead to increased costs and the rules are applied across the board, Higa said.

"We don't want to see one set of requirements for banks and another for independent mortgage firms," Higa said. "Most legislation starts out with good intentions, but changes as amendments get added by the Legislature."

Higa said he's "optimistic" that any suggestions that come out of the task force will develop into viable legislation in next year's legislative session.

"We are very encouraged to participate in the first-ever task force," Higa said. "From an association standpoint, we aren't opposed to education and regulation regarding mortgage brokers. We just want a level playing field so that everyone that acts like a broker will come under the same rules."