As published in Scotsman Guide's Residential Edition, July 2010.
The Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E. Act) and the Nationwide Mortgage Licensing System and Registry (NMLS) require mortgage brokers to hold themselves to higher standards of ethics and education -- and that's a good thing.
The licensing process intends to keep bad apples away from the mortgage profession. Brokers must know what's expected of them and how to use the NMLS to their advantage. Here's a primer.
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In the heady days of the early 21st century, the residential mortgage market resembled the Wild West. It seemed as though almost anyone could put up a Web site and go into business as a mortgage broker. Similarly, it seemed nearly anyone could qualify for a home loan.
The fallout came quickly. In 2008, more than 2.3 million U.S. properties received at least one foreclosure filing, according to RealtyTrac. The following year, the number grew to 2.8 million. Many industry observers expect the number to increase further this year.
The federal government has taken steps to help struggling homeowners -- including those who owe more on their mortgages than their house is worth -- with its Making Home Affordable programs. The federal government also instituted new regulations designed to professionalize the mortgage-lending industry and to prevent a repeat of past mistakes. These regulations should help ethical mortgage professionals by making it more difficult for unqualified and unscrupulous actors to operate.
The S.A.F.E. Act epitomizes the federal effort. The act mandates that state licensure for mortgage originators meets national standards, and it created the NMLS.
Before the new era of federal oversight, the mortgage industry essentially was regulated state by state. This regulatory structure allowed some unethical players to advertise themselves as mortgage brokers and to attract customers with promises of low rates and great deals.
Often, consumers would later face pricey fees and steep charges hidden in fine print. Worse, brokers with a criminal record in one state could move to another state and resume their operations.
For brokers who operate on the right side of the law, these occurrences were maddening. The new requirements, on the other hand, represent a positive move to this end.
Licensing through the NMLS intends to identify and track misfits and to remove them from the industry permanently. As this occurs, the lending business's overall image and reputation should be enhanced.
New loan originators who complete the appropriate training should easily pass tests the S.A.F.E. Act mandates. Any inconvenience associated with licensure can be considered a temporary nuisance and a small price to pay for the benefits of added integrity and increased respect from consumers observing the mortgage industry from the outside.
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