By Declan McCullagh
The Senate housing bill approved by a committee this week was already drawing fire from fiscal conservatives and financially responsible homeowners opposed to bailing out housing speculators.
Now it may be time to add privacy advocates to the chorus of voices urging President Bush to veto the bill, which could put taxpayers on the hook for billions of bailout dollars in new taxes or deficit spending.
Buried in the text of the revised legislation, approved by the Senate Banking Committee by a 19-2 vote this week, is a plan to create a new national fingerprint registry. It covers just about everyone involved in the mortgage business, including lenders, "loan originators," and some real estate agents.
"We know that today the rules governing mortgage brokers and lenders are inadequate," Sen. Dianne Feinstein (D-Calif.) said in a statement. "There is just a thin patchwork of regulation that varies from state to state. This legislation will create basic minimum standards for states to utilize to protect consumers." Feinstein and Mel Martinez (R-Fla.) wrote a separate bill introduced in February that has been glued onto the revised Senate housing legislation.
What’s a little odd is the lack of public discussion about this new fingerprint database. No mention of it appears in the official summary of the revised Senate bill. No fingerprint database requirement is in the House version of the legislation approved earlier this month. No copy of the revised Senate legislation is posted on the Library of Congress’ Thomas Web site, which would be the usual procedure.
The feds’ new fingerprint database would function like this: Any "loan originator" must furnish "fingerprints for submission to the Federal Bureau of Investigation" and a wealth of other unnamed government agencies. Loan originator is defined as someone who accepts a residential mortgage application, negotiates terms on a mortgage, advises on loan terms, prepares loan packages, or collects information on behalf of the consumer. Real estate agents are covered if they get "compensation" of any sort (including kickbacks) from loan originators.
It’s true that some states already have fingerprinting requirements. Colorado requires "mortgage brokers" (a narrower category) to get fingerprinted. So do Kansas, Mississippi, and Montana, for instance.
In the proposed federal system, what remains unclear is what happens to the fingerprints once submitted. The legislation talks about a "background check"--which would imply a one-time use--but also creates a Nationwide Mortgage Licensing System and Registry that "provides increased accountability and tracking of loan originators." Neither Feinstein’s nor Martinez’s offices returned our phone calls and e-mail messages asking for clarification on Friday morning.
The bill does specify that the registry will be run by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. Those two groups are currently developing a "central repository" of information with document collecting and fingerprinting that "will be accessed through a secure Web site over the Internet."
"I imagine that, yes, a fingerprint registry might stop an ex-con from handling loans, but I doubt it will make even a dent in the lending problems the bill aims to stop," says John Berlau, director of the Center for Entrepreneurship at the free-market Competitive Enterprise Institute. "And I would venture to guess that the vast majority of the problem mortgages were handled by employees with no criminal record. Rather, this seem like another thoughtless idea that lets politicians brag that they are ’getting tough’ about a particular problem."
Berlau makes a good point. Creating a database of fingerprints of "loan originators" and a subset of real estate agents might make sense. It might not. But it surely would have been reasonable to have an informed debate on the topic before politicians rushed to enact federal legislation before the Senate’s Memorial Day recess, and it would surely be wise to insist on security and privacy protections when the bill goes to the full Senate. Unfortunately, there’s little reason to believe either will actually happen.
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