S.A.F.E. Act - Mortgages and Protecting Homeowners

Even though the housing crisis which erupted in 2007 is still ongoing, Political and Financial leaders put part of the blame on those responsible for originating mortgages or your local loan officer. While there was plenty of blame to go around, Mortgage Brokers were heavily targeted as the primary culprit, however those originating mortgages who were employed by banks, financial institutions and other sectors were not exempt.

The core issue stemmed from overzealous representation of how loan officers communicated and informed homeowners of how mortgages operated. Specifically, one product became the icon of why the crisis started; The Option ARM or the type of mortgage where only a nominal payment was required, however each month payment adjustments were added to the balance. The end result is millions of homeowners who opted for such an "affordable" mortgage never dreamed they would not be able to make payments. Worse was the homeowner who took such a mortgage with the strategy of refinancing at a later time, only to find when that time occurred for a variety of reason they could not complete the transaction. The biggest reason was the real estate market had declined resulting in an erosion of homeowner equity. There were other products and reasons for the collapse but the bottom-line theme was consumers were not properly educated on the nuances of how mortgages adjusted of how reduced values would negatively affect the ability to complete a transaction. It was also suggested mortgage originators motivated by greed took advantage of homeowners by providing products they did not understand.

The housing crisis saw a huge exodus of mortgage personnel and record company closings or mergers (New Century Mortgage, IndyMac, Warren Bank, Countrywide, just to name a few), and the overall economy spiral out of control like never seen since the Great Depression of 1929.

As a strategy to safeguard homeowners in 2008 the Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E.) was adopted and basically requires any person originating mortgages obtain a higher degree of licensing from their respective states. Additionally theNationwide Mortgage Licensing System and Registry (NMLS) was also created. The basic component is those originating mortgages must complete certification on an annual basis. THIS IS OVER AND ABOVE normal licensing required prior to 2008, so as using California as an example, even though most originating mortgages were bound by The Department of Real Estate, Consumer Finance Regulations or those working for banks being regulated by Federal charter, the new S.A.F.E requirement was designed to insure mortgage originators maintain the highest level of compliance.

While the housing crisis literally split in half the number of personnel originating mortgages, the S.A.F.E. regulation further reduces the population as some in the business call it overkill and for whatever reasons choose to service other sectors of the real estate industry or leave the industry altogether. The party designed to benefit from the regulation; The Homeowner has fewer options in securing a mortgage. Therefore the jury is still out as the real estate market is depressed and mortgage originations are down to historic lows to validate whether the S.A.F.E. act is actually benefitting consumers. In the meantime consumers seeking a mortgage should complete their due-diligence and make sure their representative is in compliance.

For questions regarding this article feel free to contact the author, Fred Thomas, III at fred.thomas3@fredyt123.com

Sources

SAFE Mortgage Licensing Act of 2008

http://mortgage.nationwidelicensingsystem.org/safe/Pages/default.aspx

California Department of Real Estate

http://dre.ca.gov/lic_safe.html#14