Thursday, June 24, 2010

Weighing All of the Facts

I spent the greater part of today filling out forms on line to register my office in the Nationwide Mortgage Licensing System (NMLS) which is now required as part of the SAFE ACT which was signed by President Bush in 2008 but is just now going into effect. Of course, today was just part I--in Texas we have to be registered into the system by July 1, we have to have any continuing education requirements met by August 31, and then those of us who currently hold licenses in good standing will finish being transitioned into the federal system at the end of December.

Unlike many of the regulations that I complain about in this blog, I started out with a pretty good impression of the SAFE Act, because even though it creates some cost, I believed that a National Licensure System might ultimately create its own set of opportunities since I frequently have borrowers ask me if I can help them close their transactions in other states. After going through the preliminary work on this system; however, I just want to tell everyone that I was wrong. The SAFE Act just creates a lot of expense and additional headaches, and it so oddly intrusive as to be offensive.

The SAFE Act was designed to require that all loan originators register with the federal government. This will supposedly keep "bad" originators from leaving states where their licenses have been suspended and opening up shop in other states without background checks. The SAFE Act assigns every loan originator a number which is his for life. Other legislation--such as HR 4173 which is currently in conference this week--will then track loan delinquences from loans originated by that person and tie them to the SAFE Act ID number. So in three or four years, we will each have a record of every loan we originated that went bad. If the legislation goes through as written, it will also track how much money we are paid and whether we retained part of the risk in each loan. This information will be used to determine whether we can retain our licenses--which must be renewed each year on December 31. What a way to spend New Years Eve!

But for now, we all must just register and pay the fee. Every loan originator must register--even those working for banking institutions. (Before the end of the year, loan originators who work for small mortgage shops like mine must also take 20 hours of additional continuing education and pass a test and a credit check.)

So today, I registered our office. I had to fill out a company form to get the company licensed, and then I had to fill out individual forms for each person in the office which they had to review and attest to, and then we had to fill out an individual application for the company to sponsor each person in the office, which they had to review and attest to, so it took a while. But it was not the hours that I spent doing this that really bothered me, nor was it the $400.00 we had to pay in fees so that we continue doing what we have been doing for years. Rather, what really bothered me about this process was the intrusive nature of the questions.

I have been a licensed mortgage loan officer for 12 years, and for ten of those years I have been individually licensed, so I am used to licensing. As part of the nature of our work, we constantly fill out applications to represent lenders who check our credit, both corporately and individually and check our references, so I am used to credit checks, reference checks and filling out documents. But in my opinion, this went too far.

For instance, each applicant had to state whether they owned any interest in another business. Now it is standard practice to ask someone applying for licensure or to just to act as a broker for a lender whether they own an affiliated business (a real estate company, title company, insurance company, etc.) which would be providing joint services as part of the transaction. But that was not the question. The question was whether any of the individuals owned an interest in any other business. If so, was the business involved in financial transactions? If not, what type of business is it? What do we do there? How many hours a month do we work in the other business?

The financial disclosure questions had to do with no only whether we personally had filed bankruptcy in the last 10 years, but whether we had supervised or managed a company that had filed bankruptcy in the last ten years. That seems potentially unfair--to deny someone a license because he or she was the manager of a company that had to file bankruptcy. The bankruptcy might be the manager's fault, but it also might not be. There was no place for comments or to explain or give additional detail.

Part of the SAFE Act requires a determination as to whether an individual is financially sound enough to receive a license. That aspect has always bothered me. I understand and agree that a credit profile can be an indication of a person's character. Having read thousands of credit reports over twelve years and having worked with many people over that same length of time, I can say that a pattern of collections and nonpayments over many years can be indicative of other problems. But a bankruptcy can simply mean that the person was having a problem due to specific circumstances--such as illness, job loss, loss of a business, etc., filed bankruptcy and started fresh. I have personally known a number of people who for one reason or another had to file bankruptcy at some point in their lives, did so, and then went on to reestablish and maintain excellent credit. To put excessive emphasis on whether an individual or a company that an individual managed has had to file bankruptcy in the last 10 years is unfair because it does not account for extenuating circumstances.

And while we are on the subject of credit, what about the loan originators who have seen most of their income dry up over the last three years and because of that their credit is now bad? We went from the "land flowing with milk and honey" to a parched desert as far as lending is concerned in the space of three years. If a loan originator has his own home foreclosed on because his income is now gone and he can't make the payments, does that mean that he is not ethical enough to have a license? Should he not be allowed to work because he needs money?

There were a lot of questions about whether the applicant had ever been charged with felony or a misdemeanor related to theft. When our regulator from TSLD first gave us some training on the SAFE Act, they explained that this was one of the major changes that loan originators were going to see. Up until the SAFE Act was implemented, the regulators could make discretionary decisions about whether one incident in a person's distant past could be overlooked, and that person could be licensed. For instance, what if when you were eighteen, you were picked up for shoplifting. If that incident occurred twenty-five years ago, and since that time you have been a model citizen who learned from your mistakes, the licensing entity could take your more recent behavior into account and grant you the license. Not anymore. Bad judgment in your youth can keep you from ever getting a license under the new rules.

The whole form is pages of questions like this. But the crowning glory is one of the final questions at the very end. As part of the licensing process, the FBI does a criminal background check. (Texas made all of us go through an FBI criminal background check when we got our original licenses, so this is nothing new.) After we consent to the background check the computer asks us the final round of questions, "What is your height? What is your hair color? What is your eye color? How much do you weigh?"

Why is my height and weight any of the federal government's business? I am sure that the SAFE Act regulators would say that the FBI needs that info for the background check, but they don't. When we did our initial Texas license with our background check, nobody asked us how much we weighed. We sent in our fingerprints and that was it. Since our weight can change--at least in my case I am hoping so--why would we need to put our weight on a federal form and swear to its accuracy. Because all of the answers to all of these questions must be given under oath--attested to by the individual loan originator.

Look, as a woman I know that we are particularly sensitive to our age and weight. But even my brother Stefan, who is 27, trim, and runs over 5 miles a day, objected to providing his height and weight when I asked for that information. "I'm not answering this; they don't need to know that." It was only when I explained that this was not optional, and we could not complete the form without it that he reluctantly answered my questions. Like me, he just could not understand why the federal government needs to know this. After all, the DMV stopped asking me for my weight over two driver's license renewals ago. When I go to get my license, they just slap a new picture on top of the old info--they don't even say the word "weight". It is a polite homage to those of us who have been licensed forever as we age and get heavier. Obviously the state figures that a police officer does not need to know how much I weigh to give me a ticket. Why does Uncle Sam need to know to give me a loan originators license?

But now that I have had more time to think about it, maybe they really do need this info. After all, it could be a nice tie-in to the First Lady's war on obesity. By having height and weight statistics on file for all of us loan originators, the Feds will have a good launch point to see who is doing our part to be a good citizen by getting into and staying in shape. Maybe next year when we renew they can ask us for our blood pressure stats so that they can send the Salt and Fat police to visit us. And perhaps in a year or two our height and weight will not be just informational but will actually become part of the criteria for licensure just as credit and financial stability are today. That way, the government can ensure that all borrowers have the benefit of having their loans done by physically fit, attractive, financially comfortable loan originators, rather than just experienced ones.

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