The state?s financial regulation office has not reviewed mortgage lenders within the time frame required by state law, and licenses issued to those lenders have not been reviewed by department personnel to ensure they?re given only to qualified applicants, according to an audit of the office released Wednesday.
The Office of the Commissioner of Financial Regulation, part of the state Department of Labor, Licensing and Regulation, said it would implement the audit?s recommendations to solve the problems.
The audit, conducted by Bruce Myers of the state General Assembly?s Office of Legislative Audits, also found inadequate control over cash receipts including various assessment fees and penalties, as well as inadequate steps to ensure that lenders not renewing their state licenses were no longer doing business in Maryland.
The audit, released Dec. 17, covered the period beginning April 20, 2004, and ending May 6, 2007.
The audit found that examinations for 13 of 20 mortgage lenders tested were overdue from two to 25 months. State law requires each lender to be examined at least once every three years and within 18 months of its initial licensing.
Also, the audit found that the agency continued to fail to review issuances of new licenses. The audit agency had found a similar failure in last year?s report.
“Licenses issuances were not reviewed and approved by supervisory personnel to ensure that they were issued only to qualified applicants who provided all required information,” the audit stated. “Consequently, licenses could be issued to unqualified applicants without detection.”
In its response, the Office of Financial Regulation said it fell behind in its review process due to an “unprecedented number of new licensees” during fiscal 2007, including the last months covered by the audit.
Also, it blamed the lag time in lender reviews on a lack of staff as well as an increasingly complex review system it uses to “bring heightened scrutiny to the mortgage industry in the wake of the subprime mortgage crisis.”
In a letter accompanying the agency?s response, state Commissioner of Financial Regulation Sarah Bloom Raskin said the agency noted the importance of monitoring mortgage lenders during the current housing and foreclosure crisis.
“This is a critical time for the regulation of financial institutions,” Raskin wrote. “The current economic climate and troubles in the mortgage industry demand increased regulatory oversight for all our financial institutions.”
