The organization representing regulators who oversee the mortgage business in nearly 40 states is in the final stages of creating a national testing system as a precursor to building a countrywide database individual states can search for information regarding predatory lending and fraud issues.

The Washington, D.C.-based American Association of Residential Mortgage Regulators also is working an a model mortgage license application form that could be used by companies with branches in more than one state.

As described by Commissioner Jim Pledger of the Texas Savings and Loan Department, the objectives of the testing system are two-fold -- to make it easier to for lenders and originators to comply with the various state licensing and continuing education requirements, and to enhance the ability of states to watch over the mortgage business.

"Dealing with all the different rules are an extreme burden" for lenders who operate in more than one state, Pledger said at AARMR's annual convention in Chicago last month.

"The purpose isn't to completely and totally standardize the whole country. But to the extent that we can find a common ground and still be consistent," he said, "there can be lots of benefits" for both regulators and mortgage companies.

Pledger has been commissioner of the Lone Star State's S&L office since 1988. The office not only supervises state charted thrifts and savings banks but also licenses and oversees more than 10,000 residential mortgage brokers and loan officers.

AARMR's board hopes to approve the testing program by year's end, and expects to have it up and running and soon as possible thereafter in an effort to generate enough revenue to create a national clearinghouse of records, documents, tools and other information relative to mortgage fraud issues. Thirty-seven states, the District of Columbia and Puerto Rico are members of AARMR.

"This is a very, very mobile industry." Pledger said. "We need to have a mechanism for sharing information with other regulators."

He also made it a point of noting that the databank is being organized and controlled by state regulators, not private industry, to be used as a regulatory tool. AARMR's leadership is "very committed" to both proposals, he added.

In another step aimed at reducing the compliance burden, both on lenders and regulators, the organization's model forms committee has listed on a spread sheet all the questions asked on the license applications of 25 different states.

From that, said Bobby Brian, a reviewing examiner in Louisiana's Office of Financial Institutions and chairman of the AARMR forms panel, it created a "core" application form based on 18 similar questions the various states ask in one way or another.

The committee is now in the process of "tweaking" the standardized application to "make it more precise and concise," Brian reported.

The Louisiana regulator said the purpose of the model application is to make it simpler for mortgage concerns operating in multiple states. As it is now, he explained, such companies have to fill out a different form each time they enter a new state, providing what is essentially the same information already requested by and given to states in which they currently operate.

The new model form would require some attachments to meet the needs of certain states, he conceded. "There's going to be some differences; there's no way around that," he said.

But even with that, a standardized application would "result in a greatly simplified procedure" that speeds the application process, lowers costs and results in fewer mistakes, he said.

Louisiana is currently testing the standard form for all non-depository institutions it oversees, and with good results. Companies fill out the basic, generic application plus a more specific attachment, depending on the nature of their particular business.

The state official said the feedback from most companies has been generally favorable, and examiners in his office have found the application fairly easy to review.

Meanwhile, Maryland officials are putting the finishing touches on a new computerized compliance program that automatically flags violations and send examiners to the appropriate section of the law.

Designed by freelance programmer Tim Howard of the Office of Automation and Database Design, Germantown, Md., the software is capable of reviewing 22 different documents, any one of which can be reached within three clicks of the mouse.

It also stores data so that information can be uploaded for future reports without searching through a mound of files by hand.

Say, for example, that an appraiser was found to have inflated the value of a particular property. The system could search all properties in which the appraiser was involved to determine if he inflated their values as well. And it could do similar searches for information about loan brokers, title companies, even investors.

"We can get to information anywhere, anytime, without having to pull files," said Susan Wilderson, a financial examiner in Maryland's Division of Financial Regulation who, along with several of her colleagues, demonstrated the new program at the AARMR meeting.

"All the information will be right as your fingertips so you don't have to look it up," she told the group.

The software will eventually replace the spread sheets examiners in the Free State have been using for years, resulting in what the department expects to be "substantial savings" -- not just in money but also in time.

"We'll be looking at twice as much information in the same amount of time," said Wilderson.

Howard spent nearly a year developing the copyrighted program for Maryland. And once the last few bugs are worked out of the system, he said he will be able to do similar programs for other states as well as lenders and third party vendors who want to be certain they are complying with the rules.

In another development, state watchdogs have been invited to use federal resources in their efforts to police lenders. The invite came from Jill Heaney, who, as an operations specialist in the Department of Housing and Urban Development's Chicago office, acts as an intermediary for communities, trade groups and general public on federal housing programs.

One of the tools state overseers might want to use to figure out which lenders to study more closely is Neighborhood Watch, an early warning system that identifies early defaults of government-insured loans and analyzes patterns by geographic area or originating lenders.

State regulators could use the program to "do some scouting," Heaney suggested. "You can look at patterns across the country or in a specific city or metropolitan statistical area. Or you can look at data for all lenders or a specific lender."

Default data in the system is based on the first time FHA loans made within a two-year origination period are reported to HUD as 90 days or more delinquent. However, the statistics could include loans that have been cured after they went into default.

Heaney told state regulators that all of her agency's other online systems also are available to them, just as they are to business partners and citizens in general. Among them are a best practices database, debarments, HUDclips and limited participation denials.

The 33-year HUD employee also suggested that communication is a two-way street, telling state officials that they are free to report instances of fraud, waste and abuse that they may come across in their day-to-day chores.

"The risk of default for FHA loans is four-to-five times that of conventional loans," she said. "We're always going to have higher default rates. We're always going to have fraud. The only thing we can all do is work together to mitigate it."

Published: September 4, 2002

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.