New rules that govern how nonbank loan officers conduct their affairs and train their staff are rolling through the nation and the grumbling is getting louder. Some LOs are begrudgingly complying while others are thinking of jumping ship to a depository.
But ask most any nonbank LO about the changes promulgated under the SAFE Mortgage Licensing Act and most will tell you they think federally insured depositories got away with murder on this one.
"It really should be called the SAFE Disparity Act," said mortgage banking attorney Robert Lotstein. "There's a lot of nuances to it but basically it's created an uneven playing field with banks coming out on top."
The chief controversy surrounding the SAFE Act boils down to this: an LO working for a nonbank mortgage lender (or loan brokerage firm) must be licensed by the state and register with the government-controlled Nationwide Mortgage Licensing System. LOs working for a depository get a total pass, depending on the charter of their bank. For instance, an LO working for a federally chartered depository has to register with the NMLS but doesn't need a license, nor is he/she required to take a test. An LO working for a state-chartered bank gets off scot-free.
Some of the grumbling might seem like professional bellyaching on the part of nonbank LOs, but what it really comes down to is time and money. Nonbanks have to foot the bill for SAFE training, testing and registration costs associated with the NMLS. Brian Benjamin, who runs Two River Mortgage, Red Bank, N.J., estimates that the SAFE Act has cost him roughly $2,000. "And that's just me," he said. "That doesn't include my LOs."
A brokerage firm, Two River also must foot the bill for fingerprinting its LOs. "They get you on that, too," he said. "It's $35 for the feds and $59 for the state-each LO. When I got mine done the fingerprinting company told me they were doing 80 to 90 of these a day. They were all for mortgage guys." As for bank LOs, they don't need to get their fingers dirty with ink.
Other nuances worry the nonbank industry as well. As Mr. Lotstein noted, "There's still a question out there whether this applies to just loan officers, but also servicing employees and loss mitigation workers." In other words, if a servicer modifies or changes the terms of an existing loan, does that, in fact, count as an origination and therefore subject the lender to SAFE requirements?
Lotstein indicated that the jury is still out on that one, but some specialty servicers and vulture funds have been banned from working in certain states because they did not have lending licenses. (Georgia is a notable example of a state that has taken action against servicers.)
For some, another central issue is one of fairness. Why do banks get a pass and nonbanks have to pay and get tested? Joe L. Sheehan, vice president of mortgage operations for Cornerstone Bank of North Dakota, has seen life from both sides (bank and nonbank) and can't quite explain the logic behind the law but he's happy that he sold his brokerage firm a few years back.
"When I saw this coming I sold my business to Cornerstone," he said. But he's not unsympathetic to the plight of brokers. "I spent six years as a broker and I want them to survive." He fears that without brokers and correspondents there will be a lack of competition in the industry, which eventually will aid the nation's mega originators, and hurt community lenders like Cornerstone.
Then again he's not entirely in the camp of nonbank LOs when it comes to SAFE requirements, pointing out that banks already face a ton of compliance requirements and regulatory reports that are mandated under the Fair Housing Act, Truth in Lending Act and Home Mortgage Disclosure Act. "I would say we're pretty micro-managed by the FDIC already," he said.
Marc Savitt, a former past president of the National Association of Mortgage Brokers, is quite familiar with the problems caused by the SAFE Act but instead of getting angry, he thinks brokers and nonbank LOs should turn the situation to their advantage. "This is a marketing opportunity," he said. "I'm licensed and registered, and I've been tested. When dealing with a customer I can say that to them. And I also can say, 'Is that bank LO licensed? Has that bank LO been tested?' I have."
He believes that nonbanks should spread the word about their professional certifications and how they stack up against depositories. "As a consumer I think I'd rather deal with a guy who has a license and is registered than someone who isn't." Sheehan, when told of Savitt's position, said he couldn't agree more. "I would do the same thing," he said. "It's a competitive advantage."