The recently passed Housing and Economic Recovery Act included a provision called the S.A.F.E. Mortgage Licensing Act, which stands for the Secure and Fair Enforcement for Mortgage Licensing Act. The recent legislation passed by our US Congress and signed by the President requires every state to create mortgage licensing laws and regulations for loan originators and requires the states to take part in a national mortgage licensing registry. If the state does not comply within 12 to 24 months, the SAFE Mortgage Licensing Act then requires HUD (Department of Housing and Urban Development) to create regulations to license the loan originators.
In the new law a loan originator is defined as an individual who takes a residential mortgage loan application and offers or negotiates terms of a residential mortgage loan for compensation or gain. The definition does not include clerical or administrative staff such as underwriters, processors, assistants, and other non sales staff. What is very unique about this new law is that it is the first ever loan originator licensing that is also required for sales persons that work for state and federally chartered depository institutions, aka banks. Most likely the states will just allow HUD to regulate the loan originator licensing for the banks, but some states that are very strong on states rights will likely expand their current laws to require loan originators of banks to be licensed with the state.
The requirements under the SAFE Mortgage Licensing Act are backgrounds checks using fingerprint cards, credit history checks using credit reports, pre-licensing education, passing a written test, and net worth, surety bond, or fee that goes into a state fund. The Background check will verify that the loan originator has not had a felony in the last 7 years, and it will verify that the loan origiantor has never had a felony involving an act of fraud, dishonesty, a breach of trust, or money laundering. The credit check will verify that the loan originator is financially responsible. That is fairly vague, so I would expect each state to come up with more specific regulations that may even include a minimum credit score or other similar criteria that would be reviewed when applying for a loan. The pre-licensing education will have to be a minimum of 20 hours of approved education. Many mortgage companies are hoping that this will allow for further cross-certification of education courses between the states. The written test will be required to cover state and federal mortgage origination law. The test will have to be passed with a 75% or higher, and if failed 3 times in a row, the loan originator will have to wait 6 months to retake the test.
In addition to the new requirements for loan originators that each state must meet, every state must begin to use the nationwide mortgage licensing system. There are currently 15 or more states on the new system, and there have been even more states transitioning on to the system each month. It is expected that by 2010, every state will have transitioned on to the nationwide mortgage licensing system (NMLS). The hope is that this system will streamline the process, but until the states start to make their regulations similar, everyone will still need to supply each state with different items making the process very burdensome and far from streamline.