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
The fallout came quickly. In 2008, more than 2.3 million U.S. properties received at least one foreclosure
filing, according to Realty Trac. 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.
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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
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.
By elevating professional standards, the S. A.F.E.
Act allows licensed originators to spend less time
countering the dubious offers of unscrupulous competitors and more time improving their business and
The S. A.F.E. Act defines a loan originator as anyone
who takes a residential mortgage application, who assists consumers in obtaining or applying to obtain residential mortgage loans, or who offers and negotiates
terms of residential mortgage loans.
Originators who don’t work for a federally regulated
depository institution or subsidiary must obtain a state
license and register as a state-licensed loan originator.
Originators who work for depository institutions
don’t need a license, but their employers will enter
them in the loan-originator registry. All originators, regardless of where they work, must obtain a permanent
identifier, which allows for electronic tracking and uniform identification of originators and their loans.
The NMLS is a national clearinghouse and a central
database for state mortgage-licensing information; it’s
online at mortgage.nationwidelicensingsystem.org,
with consumer information available at nmlsconsumer
access.org. Ultimately, the NMLS will provide a more
convenient online destination for finding the most current licensing information in every state and for filling
out required forms and applications.
The primary piece of paperwork is Form MU4, the
Uniform Individual Mortgage License/Registration &
Consent Form (sample: sctsm.in/FormMU4).
The S. A.F.E. Act, which became law in summer 2008,
gave states until this summer to implement loan-originator licensing that complies with its provisions.
It dictates that states adopt standards at least as strict
as those spelled out in the act. States can, however,
implement stricter rules, if they prefer.
Loan originators requiring a license under the
S. A.F.E. Act — including brokers and those working
under brokers — must complete 20 hours of prelicensure education and pass a prelicensure exam with a
score of 75 percent or better. In addition, loan originators needing a license must:
pass a criminal background check, including fin- •
submit to a credit check; •
complete at least eight hours • of continuing educa-
meet individual net-worth requirements; • and
take out an individual surety bond. •
To obtain a license or to register as a loan originator,
not have had a loan-originator license revoked •
from any jurisdiction;
have no felonies within seven years • of the applica-
have no felonies related to fraud, • dishonesty or
money laundering; and
demonstrate financial responsibility. •
Mortgage originators should check the S. A.F.E. Act requirements compliance chart ( sctsm.in/SAFEstate) for
information specific to the states in which they work.
Recall that these originators must be licensed in every
state where they do business, including their home
state and others where they write mortgage loans.
• • •
Although many mortgage professionals have long held
themselves to strict ethical standards, the S. A.F.E. Act
and NMLS lift mortgage-originator ethics and educa-
tion to a new level. Mortgage brokers and their teams
should embrace the changes and look forward to the
resulting departure of bad apples. •
David Reinholtz is the founder and CEO of
LoanOfficerSchool.com, an approved edu-
cation provider for Nationwide Mortgage
Licensing System and Registry prelicens-
ing and continuing education. He serves
on the board of directors for the California
Association of Mortgage Professionals,
Orange County chapter, and is the group’s chairman of
education. Reinholtz has trained tens of thousands of loan
officers. Reach him at email@example.com
or at (866) 623-1250.