Mortgage Loan Officers Get New Rules

A lot has changed in the year and a half since I closed my last mortgage loan as a loan officer. New regulations regarding the relationship between appraisers and lenders, new lending guidelines, and a new system requiring individual loan officers to be licensed in every state have completely revamped the broker side of the mortgage business.    

I was on the way out of town yesterday when I ran into one of my old mortgage business co-workers at a breakfast place in the Atlanta suburbs. She stopped by our table and chatted for about ten minutes. Most industries have common characteristics that make it easy for people employed in them to convey a good deal of information with just a few industry-specific phrases. The sales people in financial services businesses seem to possess a level of verbal agility and a penchant for describing the intimate details of deals they are working on that takes this kind of exchange to a completely different level.

My old co-worker launched into a tirade about the mortgage business while I was finishing my breakfast. By the time I wiped the crumbs from my mouth, she had shared the particulars of several different loans that had fallen through, denounced the new laws regarding loan originators, and summed up why she was getting out of the mortgage business for good. So when I got where I was going, I took a whirl around the web to see what was going on in the retail side of the mortgage business that had my old co-worker so upset. It didn’t take me long to find the link to the S.A.F.E. Mortgage Licensing Act standards, a national initiative begun under the Bush administration back in 2008.   

S.A.F.E Mortgage Licensing Act Standards

Pre-Licensing Course Topics

3 hours of federal law and regulations

3 hours of ethics (shall include fraud, consumer protection, and fair lending)

2 hours of training related to lending standards for the nontraditional mortgage product marketplace

Continuing Education Course Topics

3 hours of federal law and regulations

2 hours of ethics (shall include fraud, consumer protection, and fair lending)

2 hours of training related to lending standards for the nontraditional mortgage product marketplace

By July 2009, these changes will be the new standard in the industry. Many of the states have piled on additional requirements. My co-worker was incensed at the idea of disclosing to the public all of her personal information, but most of the items, like her marital history, any previous names used, legal actions against her, or any criminal proceedings against her were already matters of public record. “I went through the same thing back when I was a stockbroker years ago,” I told her. “Back in the early 90’s, they had all of our U-4 information online.”

There are some individual requirements I don’t agree with, but then again, I live in Georgia, a state where our legislature has been known to go overboard with regulatory matters whenever they get the opportunity. For an industry famous for putting people with absolutely no financial background or training in charge of the most important transaction of most people’s lives, licensing and mandatory training were long overdue.

I’ve known far too many loan officers who didn’t understand how to use a financial calculator. Far too many loan officers who didn’t know how to read an appraisal report. Far too many loan officers who only did “stated income” loans because they were too lazy to learn the intricacies of the Fannie Mae and FHA underwriting guidelines, guidelines that would often allow the same borrower to qualify for a fixed term and a dramatically lower interest rate with no prepayment penalty.

It seems to be the first step to changing the culture of an industry that often put the needs of their customers last, if they were considered at all.