by Broderick Perkins
(2/14/2010) Landmark federal regulations designed to reign in outlaw mortgage originators, curb abusive lending tactics and reduce mortgage fraud comes with a watchdog that bites and mortgage borrowers get to help hold the leash.
Mortgage originators who don't register with the Nationwide Mortgage Licensing System and Registry (NMLS) by July 29, 2011 won't get an NMLS identification number and will be prohibited from originating mortgages.
Consumers can keep tabs on who is or isn't in the the registry by looking up the mortgage originator's name, NMLS identification number, current employer, business location, contact information, employment history and any public record of disciplinary, enforcement and arbitration actions against the originator.
The registry is the outgrowth of the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act of 2008 designed to improve consumer protections and force more transparency on the hobbled home loan industry.
SAFE also mandates that states meet or exceed SAFE Act standards for state-level licensing and registration of mortgage originators who want national registration.
Eventually, the Feds will enforce the rules under the auspices of far-reaching "Wall Street Reform," officially, the "Dodd-Frank Wall Street Reform and Consumer Protection Act."
Mortgage originators have gone kicking and screaming to comply with rules, which some say amount to overkill.
"It is another government level of getting rid of the bad apples," says Michael A. Sibilia, president of the Santa Clara County Association of Realtors.
Research from both the Financial Crisis Inquiry Commission's (FCIC) "Financial Crisis Inquiry Report" and the Center for Responsible Lending's (CRL) "Wall Street, Not Fannie Mae & Freddie Mac, Created & Led the Toxic Mortgage Market," says toxic loans and related mortgage securities spawned a foreclosure crisis that triggered the economic meltdown.
Mortgages remain a confusing subject for many consumers.
"I do believe something needed to be done because it (mortgage originating) was a wild wild west show, but it may be limiting the amount of competition and consumer choices," said Sibilia also with Keller Williams Realty Silicon Valley in Campbell, CA.
That's because it's not easy getting into the registry, which reports an initial failure rate of more than 30 percent on the tough national test.
In addition to other requirements, originators must pass both a national 100-question NMLS mortgage test and a shorter state test, with a score of 75 percent or better. The tests include questions on federal and state mortgage laws and regulations about mortgage fraud, consumer protection, non-traditional mortgages, fair lending and ethics.
Originators who fail the original national test get several opportunities to pass, but the NMLS reports subsequent efforts weren't much better. After the first test, the failure rate for all subsequent national tests combined was 56 percent.
State tests proved easier with 82 percent of mortgage originators passing nationwide the first time around.
"It's definitely a cumbersome system, but it's a good thing in and of itself, in that it protects consumers by weeding out the bad apples," said David Setti at Turnkey Mortgage Solutions in Campbell, CA.
Some states report as many as 40 percent of previously licensed mortgage originators have not reupped since the NMLS system became a requirement.
Under the SAFE Act, mortgage originators who want to join the NMLS registry must also:
Take 20 hours of NMLS pre-registration education courses in federal law and regulations, ethics, fraud, consumer protection, fair lending and non-traditional mortgage lending. Takes eight hours of continuing education each year in the same subjects.
Provide fingerprints for a Federal Bureau of Investigations background check.
Provide authorization for the NMLS to obtain a credit report.
"It's grueling, but it's important and I'm happy with the system," says Julie Larsen Wyss, a broker associate with Intero Real Estate Services in Los Gatos, CA
"It makes sense to have a background check and finger prints when you are handling consumers' money. It should have come to this a long time ago," said Wyss, also a mortgage broker with North Star Mortgage Associates in San Jose, CA.
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