2101 Wilson Boulevard, Suite 610
Arlington, VA 22201
April 30, 2015
Consumer Disclosures –Mortgage Loan Originator Qualifications
Mr. Richard Cordray, Director
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20552
Dear Director Cordray:
The Community Home Lenders Association (CHLA) writes to suggest that the CFPB require consumer disclosures on each mortgage loan that indicate whether the mortgage loan originator that worked on that loan is licensed, tested, passed an independent background check, and has completed SAFE Act approved pre-licensing and continuing education courses. As part of this disclosure, consumers that are working with a mortgage loan originator that has failed and never subsequently passed the SAFE Act test or has been denied a state license because they failed a background check should also receive a disclosure to that effect.
The CFPB is carrying out its “Know Before You Owe” initiative to improve consumer understanding and mortgage disclosures. As part of this initiative, CFPB explains how its disclosure forms and requirements achieve the objectives of Improved consumer understanding (Risk Factors, Short-term and long-term costs, and Monthly payments), Better comparison shopping ( Comparisons of competing loan offers, Shopping for closing costs), and Avoiding costly surprises at the closing table (Easier comparisons of the estimated and final terms of the loan, More time to consider choices, and Limits on closing cost increases).
We believe that these objectives of improving consumer disclosures and understanding is incomplete without requiring disclosures related to a major cause of the sub-prime mortgage crisis – the qualifications of the mortgage loan originator that worked with the consumer on the loan.
Consumers are generally not aware of whether the individual mortgage loan originator they are working with meets certain standardized professional qualifications requirements. For example, as of April 30, 2014, there were 1,415 individuals working at banks or other depository institutions and registered as a mortgage loan originator that failed (and never passed) the basic SAFE Act mortgage competency test.
Similarly, it is also our understanding that consumers are not aware that an individual can be denied licensure by a state because they failed an independent background check – but can then go on to work for a bank and need not disclose the fact that they failed such a background check to the consumer.
Moreover, we believe that the disclosures we suggest are particularly appropriate because the exemption that depository institution loan originators enjoy from basic licensing, testing, and continuing education requirements is virtually unprecedented within the mortgage, real estate, and financial services industries. Therefore consumers would have no reason to know that bank loan originators enjoy an exemption from these basic requirements.
For example, individuals, whether they work for a bank or a non-bank, that sell securities products to consumers must be federally licensed, pass a Series 6 or 7 exam, and complete periodic continuing education. Individuals, whether they work for a bank or a non-bank, that sell insurance to consumers must be licensed in the state they do business, pass a test, and complete periodic continuing education.
Moreover, bank and other depository institution mortgage loan originators are virtually the only professionals involved in real estate transactions that are not subject to these basic requirements. Specifically,
(a) Mortgage loan originators that work at non-bank mortgage firms are required under the SAFE act to be licensed, tested, pass an independent background check by each state in which they do business, and complete both pre-licensing and annual continuing SAFE Act approved education courses;
(b) Real estate brokers must be licensed, tested, and complete annual continuing education in all 50 states;
(c) Individuals that perform appraisals on mortgage loans must be licensed, tested, and complete annual continuing education in all 50 states;
(d) Individuals that do home inspections must be licensed and tested in 32 states and a majority of states require them to complete periodic continuing education;
Regarding background checks, it is true that bank and other depository institution mortgage loan originators must pass a background check. But that is merely an internal background check subject to the discretion of a bank – not the independent background check that all non-bank loan originators must pass.
In the interim, CHLA has developed a draft Model Disclosure (enclosed as an appendix) that CHLA members may use, to disclose whether the loan originator is licensed and meets SAFE Act requirements, and noting that bank and other depository institution loan originators are not required to meet these requirements. We seek your approval or non-objection to utilization of this Model Disclosure.
For all these reasons, we believe that the “Know Before You Owe” initiative would be significantly enhanced by these important consumer mortgage disclosures.
COMMUNITY HOME LENDERS ASSOCIATION
CC: Mr. John Ryan
President, Conference of State Bank Supervisors
Qualifications of Your Mortgage Loan Originator
The S.A.F.E. Mortgage Licensing Act of 2008 was passed by Congress with the goal of ensuring that Mortgage Loan Originators have the necessary knowledge and ethics to properly educate consumers on their mortgage transaction. Independent education, examination and background check requirements were put in place for certain Mortgage Loan Originators to obtain a license to advise consumers seeking mortgage financing. These are not required for Mortgage Loan Originators working at banks and other depository institutions.
The Mortgage Loan Originator working with you on your mortgage is:
_____ Not Licensed
- Passed the SAFE Act Test, a nationally recognized test of knowledge and ethics related to mortgage loans and the mortgage process; and
- Passed an independent credit check and federal criminal background check; and
- Completed 20 hours of SAFE Act approved pre-licensing comprehensive education; and
- Completed SAFE Act approved annual continuing education requirements.
As a consumer, you are entitled to know if your Mortgage Loan Originator has completed independent, training, testing and background checks.
 Mortgage Loan Originators working at banks and other depository institutions are required to undergo periodic in-house training, and some Mortgage Loan Originators have voluntarily completed testing, pre-licensing courses, and continuing education courses.