The Wall Street Journal
By: Amy Hoak
August 1, 2010
In some parts of the country, it doesn't take much to become a mortgage-loan officer. Not a license, not much training.
The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (Safe Act), is aimed at increasing consumer protection and reducing fraud. It sets minimum standards for state licensing and registration of mortgage-loan originators, including education requirements, and mandates criminal background checks for those who originate mortgages.
The deadline for Safe Act compliance was the end of July. That was extended for some states to get licensing and registration processes in place. But by early next year, all are expected to be in compliance.
Plus, the Safe Act requires that consumers have access to a national registry of mortgage-loan originators. Borrowers will be able to access employment history and view disciplinary and enforcement actions against people they're considering doing business with. Visit the Nationwide Mortgage Licensing System and Registry, at NMLSConsumerAccess.org.
The law "will enable a consumer to be more confident with whom they're dealing on the other side. When you call up a mortgage company, you don't know if the individual on the other end has been there a day or 10 years," says A.W. Pickel, president of LeaderOne Financial, a mortgage lender in Overland Park, Kan.
States have always had their own rules and regulations regarding who can originate mortgages, but they've run the gamut between strict and lax -- or nonexistent, says Bill Howe, president of the National Association of Mortgage Brokers.
In the past, a mortgage broker in Arizona could hire a loan officer, give him some training on how to fill out forms, and he'd be ready to do business, Mr. Howe says. But under the Safe Act, Arizona's new rules require the loan officer to have 20 hours of education and pass exams on federal and state laws; each year, he needs another eight hours of continuing education, Mr. Howe says.
It's an improvement Mr. Howe has wanted for years. "Consumers can know that they're dealing with someone who has a license that can be taken away and [the officer can be] kicked out of the industry and held accountable," he says.
Consumer advocates and the industry alike welcome the improvements. "The safeguards in Safe will force bad apples to fall off the tree," says Ken Markison, associate vice president and regulatory counsel for the Mortgage Bankers Association.
Barry Zigas, director of housing policy for the Consumer Federation of America, says the new standards will weed out loan officers who "either because of lack of training or a lack of integrity might be taking advantage" of consumers.
One concern: When demand increases, it could take months to hire, educate and license loan officers to respond, especially for some companies that do business in multiple states, says Anthony Hsieh, chief executive of loanDepot.com, an online direct lender. "You can't give mortgage advice or quote rates unless you are licensed," he says. Thus, hiring to address increased activity will likely take longer than in the past.
While true, that's not a negative, says Liz Freeman, a former loan agent who now teaches classes to home buyers and investors and writes about mortgage lending.
"Do you really want someone in the pipeline that fast if they don't have training?" she says. "When things get good again, everyone isn't able to crawl out from under a rock and go into the mortgage industry. That's what this will prevent."
More Help for Borrowers
The Safe Act is just one of several recent efforts aimed at protecting consumers shopping for mortgage loans.
Mortgage disclosures recently got a makeover with a new, standardized, three-page good-faith-estimate disclosure that identifies key loan terms and costs. Borrowers also are able to compare that information with a HUD-1 settlement statement at the end of the mortgage process.
An amendment to the Truth in Lending Act now requires creditors to give good-faith estimates within three business days of receiving a consumer's mortgage application. Creditors must wait seven business days after providing those disclosures before closing the loan; if significant changes are made to the annual percentage rate, the lender has to supply a new good-faith estimate to the borrower and allow three more business days before closing.
And the new financial-reform law creates restrictions regarding broker compensation, specifically on yield-spread premiums, Mr. Pickel says. Consumer advocates often blame those premiums for encouraging brokers to steer consumers into loans they couldn't afford.
The legislation "prohibits a loan officer or mortgage broker from being compensated based on the rate. Whether they quote you 6.5%, 5% or 7%, the compensation is the same," he says. Under the new law, compensation still can change based on the loan amount or the volume of loans that the loan officer or broker does, he says.
Write to Amy Hoak at firstname.lastname@example.org