Author's note: See follow-up post "Are Borrowers Next?"
Fingerprints are considered to be among the most personal of information, and fingerprint databases created and proposed in the name of national security have generated much debate. Recently, "Server in the Sky" -- a proposed international database of the fingerprints of suspected criminals and terrorists to be shared among the U.S., U.K. and Canada -- has ignited a firestorm of controversy. As have cavalier comments by Homeland Security Secretary Michael Chertoff that fingerprints aren't "personal data."
Yet earlier this week, a measure creating a federal fingerprint registry totally unrelated to national security passed a U.S. Senate committee almost without notice. The legislation would require thousands of individuals working even tangentially in the mortgage and real estate industries -- and not suspected of anything -- to send their prints to the feds. The database and fingerprint mandates were tucked into housing and foreclosure assistance bills that on Tuesday passed the Senate Banking Committee by a vote of 19-2.
The measure the committee passed states that "an indvidual may not engage in the business of a loan originator without first ... obtaining a unique identifier." To obtain this "identifier," an individual is requiredto "furnish" to the newly created Nationwide Mortgage Licensing System and Registry "information concerning the applicant's identity, including fingerprints for submission" to the FBI and other government agencies.
The fingerprint provisions are contained in a "manager's amendment" that was hammered out by committee Chairman Chris Dodd, D-Conn, and Ranking Member Richard Shelby, R-Ala., on Monday and attached the next day to a broader housing bailout bill that had been scheduled for a comittee vote. That bill, the "Federal Housing Finance Regulatory Reform Act of 2008,” expands the lending authority of the Federal Housing Administration and the government-sponsored enterprises Fannie Mae and Freddie Mac to refinance the mortgages of troubled borrowers and banks.
The amendment adopted the fingerprint provisions in a section called the "S.A.F.E. Mortgage Licensing Act." The fingerprints will be part of what the amendment calls "a comprehensive licensing and supervisory database."
And the database would cover a broad swath of individuals involved with mortgage lending. The amendment defines "loan originator" as anyone who "takes a residential loan application; and offers or negotiates terms of a residential mortgage loan for compensation or gain." It states that even real estate brokers would be covered if they receive any compensation from lenders or mortgage brokers. Since many jobs in both real estate and mortgage lending are part-time and seasonal, even some of the most minor players in the mortgage market may have to submit their prints.
Justifications listed in the bill for this database include "increased accountability and tracking of loan originators," "enhance[d] consumer protection," and "facilitat[ing] responsible behavior in the subprime mortgage market."
I conducted a wide Internet search and found fingerprint provisions in some state bills, but I don't know if any, or how many passed. But in my search, I could find no arguments explaining how, specifically, collecting the fingerprints of loan originators would better serve borrowers getting mortgages. I called the Senate Banking Committee asking this question, but my call has not been returned yet. (I will update OpenMarket readers when and if it is.)
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. And I would venture to guess that the vast majority of the problem mortages 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.
But this fingerprint database, in addition to the privacy violations, might create a host of new problems of mortgage fraud. Identity theft involving fingerprints is becoming a major concern among data security experts. Security consultant Bruce Schneier has argued that hackers can steal electronic images of fingerprints directly from the databases they are stored in. And there is virtually nothing in this bill about security procedures that would apply to this database.
It amazes me. We have wrenching debates about privacy and freedom vs. national security when it comes to proposed anti-terrorist programs. But then a smililar scheme is done in response to an economic problem, and it almost escapes without notice. A similar thing has happened with anti-money laundering requirements that mandate that banks effectively spy on their customers for possible violations of everything from drug laws to the tax code.