Consumer protection is the main purpose of licensing. Consumers benefit by knowing that they are dealing with competent individuals who have certain level of experience and education in the area of mortgage financing. Licensing aids in consumer protection through the various benefits of licensing, as discussed below.
License is not a guarantee of competency or ethical behavior. There will always be some certain individuals who will try to cut corners, gain unfair advantage, or commit outright fraud. In the end, the borrowers need to do their own due diligence in selecting a mortgage originator.
Police power is the source of creating laws that require mortgage licensing. According to CA Bureau of Real Estate (BRE) Reference Book, Chapter 1, page 1:
"Police power is the power of the state to enact laws within constitutional limits to promote the order, safety, health, morals and general welfare of our society."
It is the police power that allows the State legislature and federal government to require individuals engaging in mortgage profession to obtain licenses. Using police power a State cannot take away the right of employment but can only regulate it for consumer protection or general welfare of the society. This implies that the licensing agency cannot arbitrarily refuse to give a license. If a person meets the requirements then the agency must issue a license.
Updated: Sep 14, 2013