Housing and Urban Development released its final rule on the Secure and Fair Enforcement Mortgage Licensing Act at the end of June. It exempts employees of government agencies, loan servicers, mortgage modifiers and employees of non-profit agencies from licensing and registration requirements in the act.
As a mortgage loan originator for the past 14 years, I welcomed the SAFE Act in 2008 because I hoped it would raise the bar and weed out the unscrupulous players in my industry by requiring licensing standards just like other professionals. Unfortunately for consumers it has fallen short of this noble goal and left enough vagueness to keep the corporate attorney busy for many years.
My personal favorite is HUD's verbiage that those who engage in mortgage origination activities "to some degree of habitualness or repetition" need to be licensed or registered.
I have heard the arguments from many finance executives of exempt institutions that they provide the training and oversight for their mortgage people. The debacle with modifications, foreclosures, et al over the past thre years has proven otherwise.
What the mortgage industry needs is one set of professional requirements for all people who engage in mortgage activity. If you are dispensing residential mortgage advice to consumers you should have a license, period.
According to HUD, "The SAFE Act was established to provide minimum standards for licensing of residential mortgage loan originators in order to increase uniformity, improve accountability of loan originators, combat fraud, and improve consumer protections." This led to establishment of the Nationwide Mortgage Licensing System, which created a two-tiered system of "licensed mortgage loan originators" and "registered loan originators."
All mortgage loan officers must register with the NMLS. For mortgage loan originators who are an employee of a federally insured depository institution, most banks, or an owned and controlled subsidiary of such depository institution there is no action required by the NMLS other then registering.
However, loan officers who are employed by companies that are regulated by the state in which they operate are required to be licensed.
For those requiring registration, e.g. bank employees involved in loan origination, they must submit to fingerprinting, criminal and financial background checks. However, under the registration system, bank loan originators do not have the education and requirements that state licensed loan originators do.
To put it into perspective for consumers, imagine going to your physician, attorney or financial planner. These professionals are required required to participate in continuing education. It does not mater if that professional is in private practice or part of a large practice or government entity. Would you trust one of these professionals if he or she were exempt from licensing simply on the basis employer?
Later this year the Consumer Finance Protection Bureau will take over from HUD the role of determining who is in need of licensing and requirements, and the agency has the right to improve on the requirements stated in the SAFE Act. They can start by hiring some actual mortgage professionals to assist them in this endeavor. What my industry does not need is more burdensome polices from very intelligent, well-educated people who have never sat across from a consumer and taken a mortgage application or written a loan.
The U.S. has a wonderful residential mortgage finance system. Nowhere else in the world can you put down 20% and finance the remainder on a 5% fixed-rate mortgage for the future 30 years. To insure its survival our government has a fiduciary duty to make sure those individuals engaged at the entry point for home ownership are qualified.
Richard Booth is a certified mortgage banker with America's First Funding Group. LLC. a residential and commercial lender in Neptune, New Jersey.
