Jay Hancock over at the Baltimore Sun provides a look behind the curtain within Maryland's mortgage regulatory framework, and what he finds isn't pretty. Hancock obtained access to a mortgage audit by the Maryland Department of Legislative Services, which found that state regulators were as much as two years late in performing required examinations of brokers/lenders -- in addition to finding that the state's Office of the Commissioner of Financial Regulation was "overwhelmed" by more than 15,000 mortgage broker applications earlier this year, when the state enacted licensing requirements. As a result, auditors said broker licenses "were not reviewed and approved by supervisory personnel to ensure that they were issued only to qualified applicants. Consequently, licenses could be issued to unqualified applicants without detection." From the column:
Maryland's mortgage mayhem - 16,000 foreclosures in the last year - probably wouldn't have been prevented by more effective regulation. But it might have been ameliorated. State regulators are at least supposed to conduct basic background checks to keep out criminals and amateurs. The bigger question is this: If the state can't enforce the lightweight laws it has, how will it deal with tougher mortgage screening that is almost certainly on the way?
Bingo. And its a question that should extend well beyond Maryland, which is why I'm bringing attention to this story. Federal mortgage regulation is already coming down the pike at breakneck speed; and there will likely be more to follow. That's on top of most state legislators loading up the books with new regulations that are, at least in theory, designed to prevent abuses of the mortgage lending system. To say that the regulatory environment surrounding mortgage banking is increasing in complexity, as a result, is pretty much an understatement. And if a state like Maryland can't keep up with its own bare-bones regulations, I have to wonder how states like California plan to cope. Or Florida. Or Colorado. I've written here before that implementing the programs and legislation now being pushed through at the state and Federal levels will require servicers to ramp up staff (loan modifications don't just -- poof! -- appear out of nowhere), but it's also clear that the new regulatory landscape now emerging for mortgage banking is already straining those tasked with actually doing the regulating.