Problem
The SAFE Act requires mortgage loan originators (LOs) that work for non-depository institutions (non-banks) to be registered and licensed, to complete 20 hours of pre-licensing (PL) courses and taking an exam before being able to act as a loan originator, and to complete 8 hours of continuing education (CE) courses each year. In contrast, bank mortgage LOs are subject to some SAFE Act requirements and as of January 1, 2014, an internal training requirement – but are not required to complete SAFE Act pre-licensing and continuing education course requirements or even to take the SAFE Act exam. Since the PL and exam process, combined with state license approval, can take several months, bank LOs that want to move to a non-bank mortgage lender are often unwilling to forgo income for the time it takes to complete this process. This is anti-competitive and therefore bad for consumers – and unfair to non-bank mortgage originators.
Reason for the Problem
This problem arises in large part because when the SAFE Act was adopted in 2008, there were no comparable statutory provisions regarding the qualifications of bank mortgage loan originators, and therefore, there was no clear justification at that time to give bank loan originators transitional authority to do business when they move to a non-bank. However, now that the CFPB has adopted a requirement and process for bank loan originators to be “qualified,” it is timely and appropriate to authorize transitional authority for these individuals.
Solution
Congress should enact H.R. 2379, legislation by Reps. Spencer Bachus (R-AL), Gary Peters (D-MI), and Gary Miller (R-CA) to create a period of 90 days under which bank mortgage loan originators who have recently worked for a bank and met the standard of being “qualified” under the Truth in Lending Act to carry out loan origination activities, can go to work for a non-bank. This will give them the time to comply with SAFE Act requirements, primarily the required pre-licensing courses and exam.
Background
The SAFE Act was adopted in August, 2008, in the wake of the financial and subprime mortgage crisis. Its primary purposes were to provide for more comprehensive and integrated registration and licensing for non-bank mortgage loan originators, and to improve qualifications of non-bank mortgage originators in the wake of shoddy underwriting and questionable consumer practices, particularly in the subprime mortgage market. Bank LOs were exempt, in part, because banks are subject to bank supervision.
After adoption of the SAFE Act, with the financial crisis later that year, came a growing recognition that banks also played a significant role in the mortgage crisis, with many banks taking TARP assistance, in part, necessitated by mortgage losses and securitization abuses. In 2010, Congress also created the CFPB and mortgage regulations under Dodd-Frank, including provisions designed to protect consumers from mortgage abuses, with requirements for both banks and non-banks.
Specifically, Section 1402(b)(1)(A) of the Dodd-Frank Act requires that bank mortgage originators be “qualified.” In January, 2013, the CFPB adopted a rule to implement this, which requires “training,” but not SAFE Act pre-licensing courses or exams. While there is debate whether this provides adequate qualifications requirements compared to the SAFE Act (the so-called “SAFE Act parity” issue), this provision clearly establishes standards under which all bank LOs are deemed to be “qualified” to engage in mortgage loan origination.
The result is a seeming contradiction under which an LO that is deemed to be “qualified” the last day that person works for a bank is considered unqualified the very next day that same person goes to work as a mortgage loan originator for a non-bank. H.R. 2379 would address this anomaly, by creating a reasonable 90 day period in which that person could work for a non-bank lender, while they complete all SAFE Act requirements.
Consumers would benefit from the enactment of H.R. 2379, which would create a more competitive market in which qualified bank mortgage loan originators could more easily go to work for non-bank mortgage lenders.
[This material has been prepared by the Community Home Lenders Association (CHLA) for informational purposes only, and may not be used for public use without the express written consent of CHLA]