FHA to lenders: Show us your license

HUD has come out with a new standard for lenders, the requirement to see the license number for each lender or loan officer who does an FHA loan. The numbers are recorded with the Nationwide Mortgage Licensing System and Registry (NMLS).

Okay, what does this mean and why should borrowers care?

When you sell a home and list with a real estate broker that broker works for you as an agent. When you engage a real estate broker as a buyer broker that broker works for you as your agent.

The term “agent” is very important, it means that the individual must put your interests first, even if it means a smaller real estate commission.

With lenders, we’re told, the obligation is to serve the best interests of an investor — and not the borrower. With the huge exception of the UpFront Mortgage Brokers Association, lenders have repeatedly said they do not and cannot represent borrowers.

One result is that borrowers looking for the best rates and strongest mortgage quotes have often gotten loans with higher costs and worse terms than could be justified by their income and credit.

As an example, according to the Wall Street Journal 55 percent of all subprime borrowers qualified for FHA, VA and conventional financing in 2005, a figure which rose to 61 percent in 2006. (See: Subprime Debacle Traps Even Very Credit-Worthy, The Wall Street Journal, December 3, 2007)

New Licensure Law

For the past year or so the states and the federal government have not moved to force an agency obligation onto lenders, instead they have required lenders and loan officers to register under the NMLS. Each registrant, in turn, gets a nice, shiny number which they must attach to loan packages under the Wall Street Reform Act.

The registration number is important because there’s only a single permanent number per lender or loan officer. One result is that if you lose your license to lend in one state you cannot open shop elsewhere.

No less significant, if a given number has a high foreclosure level relative to a local area then investors might want to reject loans from that registrant for a mortgage-backed security (MBS).

Is the new FHA requirement good for borrowers? The answer is yes — after all, registrants with lousy records will be forced out of the business over time. That’s not as good as requiring an outright fiduciary obligation, but it’s a start.

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Posted in: Mortgages

1 Comment on "FHA to lenders: Show us your license"

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  1. Shawna Burford says:

    I would think it’s not too much to ask that these mortgage loan officers be held responsible for the lives of people they destroy by ripping them off. Especially after our government GAVE them millions of dollars to bail their business out because they set it up so we would lose our homes. It really makes our goverment look stupid and then they say we will profit along with the mortgage companies? So now our government is involved in the scams the mortgage companies are pulling on our citizens?? Something MUST be done right away. Buying a home is serious, is there any company we CAN trust?? The officers should lose their licence AND be held responsible financially.

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