Regulators & Congress beware: The SAFE Act is ruining the mortgage/reverse mortgage industry.

 
Thanks to overzealous regulations, you, the regulators, have planted a time bomb that will explode with    an annihilative force that will eradicate the reverse mortgage industry and perhaps the forward mortgage industry as well. 

The enemy of the people was not the mortgage bankers, mortgage brokers and FDIC Banks, who sold those liar loans that went bad. If truth be told, they were just complying with the demands of the secondary market. It was the unbridled greed of the secondary market s that created the imbecilic, maniacal mania that led to the “get your loan now” stampede.

People knew the old rules of the game. In order to get a mortgage, one had to earn that right. In other words, one had to meet the tried and true underwriting criteria as promulgated by Fannie Mae/Freddie Mac.  Then in 2002, this criterion was ditched in favor of a more generous one that demolished any and all barriers to the mortgage market.  And the regulators looked the other way.

During this free for all, if you were a potential borrower in need of that heretofore elusive equity, you were portrayed as a fool, if you did not take this opportunity to help yourself and your family. It was difficult to be the lone “village idiot holdout” who said “no thank you”, when the pundits were saying real estate values never go down. Let’s face it; this time became the time to take advantage of the mortgage market. Millions of people joined in. Imagine, it was like the drug addict being offered cocaine…and it was O.K.to partake. 

After the mortgage debacle, the search began in earnest for the scapegoats. Naturally the clues led to the entities with the smallest lobbying dollars.  There was no way that the blame for the implosion was going to be placed at their doorsteps. Those damn mortgage brokers/bankers. If it was not for them, we would not have had a mortgage market implosion, the thinking goes.  And the SAFE Act was passed by Congress.

I have met my share of politicians. One on one they are a very hard working, caring group of people. However, the FDIC banks have snookered Congress into thinking that they, the banks, do not need to have their loan officers subject to the licensing, continuing education & testing requirements of the SAFE Act. The test is so rigorous that the passing rate is about 50%. The unintended consequence of this is that the mortgage banker/broker component of the mortgage industry will be decimated.  Well maybe it was not an unintended consequence. If an individual wants to become a loan officer, they would choose a FDIC bank over a broker or a banker because no courses or testing is then required.

But I will tell you this, for my money a broker/banker is a thousand times more knowledgeable than a loan officer working for a FDIC bank. In fact, the SAFE ACT is being undermined by these banks. Whether a borrower goes to a FDIC bank or to a mortgage broker/banker for a loan, the same rules and laws apply. The banker/broker through the continuing education courses and the tests that are required to be taken know the rules and the laws like the back of their hands. The loan officers working for the FDIC banks know they are immune from these requirements. That is about all they know. It is impossible for banks to individually teach their loan officers what all others must comprehend.

The government cannot bring confidence to the mortgage industry unless all such originators are subject to the SAFE ACT. Therefore the registration of loan officers should be repealed and replaced with the same licensing requirements that are required of the brokers/bankers.

Comments

[Bob Irving]

Thank you, Dennis. I was one of the first to take the SAFE Act test in my office and I warned about it early on. Excluding the FDIC bankers is evidence of their lobbying power. Forcing reverse mortgage specialists to take a test that bears no relationship to the business is evidence that we have no such voice.

[Carter's Mortgage Journal]

It is amazing how those without oversight can cause so much damage. Thank you for providing some clarity.

[Kathie Adler]

Dennis, you always hit the nail on the head! I'd like to meet the people who made UP the test! Testing results seem to be better now. As of 12/31/2009 the pass rate is 68% on the SAFE test, per NMLS (National Mortgage Licensing System for those not familiar). I have not checked since that date. But that's better than the 40% failure rate we had heard about. The test is not easy. It's tricky. Furthermore, it was frustrating to find not ONE single question about Reverse Mortgages on the entire test!! I passed first time only through rigorous studying and grueling work printing up all the regulations I could find! I wish everyone luck. For now, I can only say the current state of affairs with ONLY brokers and bankers being licensed and tested and banks exempt-- is totally unconstitutional! To quote Aristotle, who had it right: "If liberty and equality, as is thought by some are chiefly to be found in democracy, they will be best attained when all persons alike share in the government to the utmost." Aristotle Greek philosopher,Source: Politics, 343 BC

[Beth Paterson]

How true! The FDIC bank loan officer is not on the same playing field as the mortgage broker/banker when it comes to testing and licensing. While they were just as involved, maybe more so, in the mortgage debacle they are excluded from meeting the same testing and licensing as those of us who are brokers. This also means that the FDIC bank loan officer is not as educated in the industry as those of us who go through the educating, testing and licensing. Great article!