Published: July 10, 2008 09:45 am      

Many Indiana mortgage brokers face license loss

More than two-thirds of Indiana’s mortgage brokerage companies could lose their licenses under a new state law — causing headaches for some potential homebuyers.

Secretary of State Todd Rokita said this week that more than 600 of the state’s 950 licensed loan brokers have not met requirements set out in a 2007 law. Mortgage brokerage companies are not banks or credit unions that offer mortgages. Instead, brokers act as third parties that match a borrower to a lender.

A 2007 law required mortgage brokerage companies to name a principal manager by July 1 of this year. A principal manager is a leader with at least three years experience, who has passed a state exam.

But Rokita said most companies have not named a qualified principal manager — or even attempted to have an employee take the exam. Some companies may have gone out of business because of problems in the real estate industry, while others just aren’t listening, said Securities Commissioner Chris Naylor, with the Secretary of State’s office.

The 639 loan brokerage companies that haven’t had a principal manager take the exam have until Aug. 5 to comply or they will lose their license to do business in Indiana.

About 50 principal managers have attempted the test but failed. They have until Sept. 1 to pass the test. The remainder of the state’s 950 brokers are already in compliance with the law.

“I think it’s probably a good step, given the issues the mortgage industry has been through recently,” said Jim Bethurem, manager at New Millennium Mortgage in Jeffersonville.

He’s one of only a handful of local brokers so far that have passed the exam and acquired a license for his company.

“It’s like any other industry, it has to have some kind of regulation when dealing with people’s lives,” he said.

Bill Givens, of Ultimate Mortgage Co. in Jeffersonville, is in the process of studying for the exam now. He believes in regulation, but said the new law is more of a Band-Aid solution, where real reform is needed for both brokers and bankers.

“What I think they should do is that every mortgage broker should have a college education,” he said.

The same rule should apply to bankers as well, he added.

“The mortgage broker doesn’t underwrite the loan, the lender underwrites the loan,” he said. “You can’t just have people coming out of high school. You’re dealing with people’s livelihood here.”

It is not illegal for potential homebuyers to work with brokers who don’t meet state requirements, Rokita said. But after Aug. 5, Rokita’s office will shut down those brokers. So homebuyers whose loans have not closed by that date could have to start their mortgage process all over again with a new broker.

Mike Monaco, president of the Indiana Association of Mortgage Brokers, said he hopes homebuyers in that situation will find a qualified broker to go forward with their mortgage.

“We don’t want to see anybody get stuck behind the eight ball and not have a loan that closes on time,” he said.

Rokita said homebuyers can check with the secretary of state’s office to see whether their broker has named a principal manager. The information also is available at the secretary of state’s Web site at www.in.gov/sos

The law may cause problems for some homebuyers, but will clean up the mortgage broker industry in the long run, Rokita said.

“Mortgage brokers are being held to a higher standard,” Rokita said. “They need to understand the importance of the new requirements they face.”

The exams are available at Ivy Tech Community College campuses around the state and have been available since October. The Secretary of State’s Security commissioner has sent several letters to loan brokers over the last year informing them of the new requirements.

The Indiana Association of Mortgage Brokers supported the law requiring principal managers. Monaco said he’s not sure why some brokers haven’t yet taken the test.

“They’ve had the opportunity to comply for a year now,” he said.

The Associated Press contributed to this story.



So you know

Area mortgage brokers that have gotten licensed

• Home Financial Inc., Clarksville

• Homequest Mortgage Network LLC, Louisville

• Mortgage Network Inc., Louisville

• Neely Mortgage Group Inc., Jeffersonville

• New Millennium Mortgage Inc., Jeffersonville

• Red Liberty Mortgage Services LLC, Louisville

— Indiana Secretary of State’s office