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Mortgage licensing harms industry, consumers

Mortgage licensing harms industry, consumers

There’s a little known federal licensing system for mortgage loan originators that largely duplicates our state licensing program and, I think, is both harmful to the industry and ultimately consumers.

The SAFE Act, or the “Secure and Fair Enforcement for Mortgage Licensing Act,” was enacted by Congress in 2008, creating a national vetting, tracking, testing, registration and licensing system in the hopes of better protecting and serving those consumers who seek residential mortgages.

The testing and licensing system is named National Mortgage Licensing System and is commonly referred to as NMLS. It is owned by the Conference of State Bank Supervisors. The Conference is a non-profit corporation, not a regulator and not a government agency, enjoying a congressionally sponsored monopoly.

There are two levels of approvals: Mortgage brokers and non-depository mortgage bankers. They are required to complete 20 hours of education and take an almost 4-hour federal exam and a two-hour state exam in addition to a criminal background check (including fingerprints), credit report, and a 10-year personal history statement.

Institutional loan officers, — that is bank and credit union mortgage loan originators — have no education or testing requirements and no SAFE credit checking. They merely have to go through the criminal check, register and pay up.

Pity the poor borrower. In the middle of the mortgage meltdown, with bankers capturing predatory practice headlines and enforcement and litigation liability, Congress thought it was a good idea to bypass education and testing requirements for depository loan officers. Smart!

For the first quarter of 2015, NMLS data for California shows 41,691 bank mortgage loan originators and 39,364 licensed mortgage loan originators (MLO’s). Bank loan officers can originate across state lines, regardless of their registration state.

The SAFE Act is an expensive redundancy for California loan officers, costing more than $ 900 for education and licensing requirements. That’s almost double the $ 500 fee it already costs for California’s Bureau of Real Estate (BRE) all-in licensing fees. MLO education and renewal charges add another $ 480 a year.

In the truest sense, it is pay to play. No money. No license and no livelihood.

NMLS realized annual revenue of more than $ 62 million, with more than $ 87 million in assets, according to the State Regulatory Registry’s 2014 audited financial statement.

The annual report indicates 49 full-time equivalent employees. The 2014 audited financial statement indicates more than $ 10.5 million goes toward salary and benefits. That averages out to almost $ 215,000 per employee. Nice!

“I would question why they need a reserve of $ 62.8 million. The annual revenue more than covers the program and administrative costs,” said Jodi Ristrom, partner and audit expert at Tustin-based HMWC CPAs & Business Advisors.

NMLS has deeply confidential information, potentially exposing loan officers to identity theft and extortion. Bill Matthews, executive vice president of the Conference of State Bank Supervisorsand president and CEO of the NMLS, said they do a pre-employment standard background check but would not provide details.

Next week’s column will spotlight SAFE Act critics, defenders and my system improvement ideas.

Mortgage broker Jeff Lazerson can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. Twitter: @mortgagegrader_

The Orange County Register – News Headlines : Real Estate News