In the wake of the sub-prime mortgage fallout, Congress has pursued and enacted several measures to increase disclosure and reduce the likelihood of being sold a mortgage product that is unsuitable. It seems, however, the action is being misdirected. Most of the new regulations that are being enacted are aimed at independent mortgage companies and mortgage brokers, rather than at the large banks that created most of the sub-prime programs sold to borrowers. The same firms that received billions of Federal bailout dollars from taxpayers.
One example of these new regulations is the implementation of the National Mortgage Licensing System. Mortgage Brokers have been required to be licensed in most states for years. In Texas, this can include 60 hours or more of pre-licensing training, passing a comprehensive exam, background check, and the maintenance of certain capital requirements. The new National Mortgage Licensing System (NMLS) introduces a system that does exactly the same thing, albeit with lower classroom requirements. It also adds previously exempted loan officers to the rolls, including loan officers that work for “mortgage bankers”. Interestingly, this licensing requirement exempts employees of the large national banks referenced above. It appears that the massive lobbying effort put forth by these banks that drove this decision, rather than a genuine interest in the welfare of the consumer.
In addition, there are more disclosure requirements that are placed on employees of mortgage brokers and independent mortgage bankers that are not levied on banks. While banks make money on the origination of a loan, the interest rate charged to a client, and on the servicing of the loan, they are only required to disclose their direct origination compensation. Other mortgage lenders are required to disclose all direct and indirect forms of compensation. This means it may appear that a bank is making far less on your loan than another mortgage provider when this is not the case.
It seems like all of this has worked. The five biggest banks (Wells Fargo, Chase, Bank of America, Citi, and SunTrust) now dominate the residential mortgage market. They accounted for 63% of all mortgage origination last year, up from 46% in 2007. It is no wonder they have been able to repay their TARP funds.
When you are searching for a mortgage source, be sure you take these factors into account and understand the playing field is not level. What matters most is the interest rate you receive and the fees you pay to your lender at closing, not how or if this is disclosed to you. Also, don’t be as concerned with what business card your loan officer gives you, but more so with the qualifications he or she carries.
Here are some questions to ask:
* Have you passed a national or state exam, and are you licensed?
* How many hours of training were you required to have to become a mortgage loan officer?
* How long have you been a mortgage loan officer?
* What third-party certifications have you earned in the mortgage field? Did they require testing?
* How many hours of continuing education are you required to have each year?
If your loan officer doesn’t have quick answers to these questions, it’s probably time to move on. Being educated in your decision now will make a lot of ‘cents’ in the future!
