Seeking to quash irresponsible behavior, federal regulators have initiated a series of reforms to the lending industry.
A major component, to be covered in a future Mortgage Matters, is a total revamping of the Truth In Lending Disclosure. There are serious flaws in these new documents, but for now let me go on record with a thumbs down for many of the changes to the disclosure forms.
There are some reforms that do garner my support. A national licensing requirement for all loan originators is foremost among the changes I endorse.
So far, 43 states have implemented an education and testing program for the National Mortgage Licensing System (NMLS). In California, both the Department of Corporations and the Department of Real Estate are submitting their education and licensing guidelines for federal review and approval.
It appears that the Department of Corporations will be the first agency to have their program in place. I can only hope that elevated standards will screen out some of the “financial services” enterprises in this state.
It is my opinion and observation that historically, the Department of Real Estate has produced a better population of loan originators.
To my disappointment, one aspect that has not changed is the exemption of bank employees from licensing and testing. A loan officer working for a mortgage banker or a mortgage broker has long been required to hold a license.
A bank employee responsible for the same set of activities does not require any sort of license at all. Fortunately, the potential liability from malpractice requires banks to maintain high standards for their loan originators. Hopefully, they insist upon proof of knowledge and proof of character.
The new national licensing requirements will call upon loan originators to demonstrate proof of character, and I applaud this rule.
All loan originators must have a registry number with the National Mortgage Licensing System, and that number must appear on the loan application you complete and sign.
That registry number will attach to the loan officer’s license at completion of education and testing. In order to obtain a valid license, applicants must submit to a review of their personal credit history.
Imagine that? A counselor for one of the largest financial commitments of your lifetime, must demonstrate their own sense of responsibility!
As of this writing, there is no minimum credit score or automatic disqualification. It is my understanding that even a bankruptcy may be forgiven, if it was not the result of financial mismanagement.
It would be naive to expect a foolproof system. There will be individuals who make the grade while lacking the requisite moral compass to conduct themselves properly.
The key to improving the integrity of lending can be summed up in one word — oversight.
As the year progresses the consumer will be exposed to new terminology and protocols for conducting business. Some delay and frustration may result — undesired by-products of change.
And change will be an ongoing part of our industry during 2010.
David Ryland is the acknowledged dean of loan originators at Big Valley Mortgage in Roseville. He has 30 years of experience in the field. He can be reached at dryland@apmortgage.com.
