Mortgage Shopping Gets S.A.F.E.er and Easier

Shopping for a mortgage means doing more than comparing mortgage rates. It means checking up on the mortgage lenders and loan officers who are competing for your business, making sure that they are licensed, and understanding what requirements they must meet to do business in your state. Some states have no requirements at all (I refer to these as "fog a mirror" states) and others, like California, require background checks, classes, and passing tests. Some states have online databases of licensed lenders, others make it more difficult to get this information. In October, making sure that your lender is qualified will get a whole lot easier.

S.A.F.E. Act Provisions Require National Standards for Mortgage Originators

The Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act of 2008�� requires mortgage originators not directly employed by banks or credit unions to register with the National Mortgage Licensing System and Registry and provide fingerprints for background checks. The Federal Reserve, Federal Deposit Insurance Corp., Office of Thrift Supervision and Office of the Comptroller of the Currency all issued final rules today for the application of the Act's provisions. The final rules take effect Oct. 1, 2010. Delays on the part of states' regulators as they gear up to enforce S.A.F.E. have kept it from going into effect previously.Some states are already up and running, however.

Under the S.A.F.E. Act, mortgage loan originators must meet numerous professional requirements including:

• 20 hours of pre-licensure education;
• At least 8 hours of professional education each year;
• Passage of a state and a federal test covering federal and state law and ethics;
• A criminal background check; and
• The maintenance of a surety bond that protects consumers from fraud.

In addition, lenders must meet standards for license issuance including:

• Never having had a revocation of loan originator license
• Never having had a felony conviction involving an act of fraud, dishonesty, or a breach of trust, or money laundering (no other types of felonies seven years prior to application)
• Demonstrate financial responsibility
• Meet a minimum net worth requirement or surety bond requirement.

The tests are not a piece of cake. Mortgage industry sources place the failure rate at anywhere from 30% to�� 70% (!)�� for first-time takers. Once your state is participating in the program, you can be confident that a licensed mortgage originator has a satisfactory background and some level of verified expertise.