Mortgage brokers in all 50 states will be required to undergo criminal background and credit checks, as well as licensing exams, by Jan. 1, 2010. The new rules will assign brokers identification numbers to enable regulators and borrowers to track their lending histories, according to a July 21 Bloomberg story.
Some states, such as California, are getting a head start on enacting the legislation. Other states, including Illinois, New Jersey and Virginia, already have adopted the rules.
Previous to the passage of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, or SAFE Act, about a third of states didn’t require mortgage sellers to have individual licenses. But after record mortgage defaults and foreclosures triggered the financial crisis, Congress adopted new rules to embed accountability into a sector of the market that lacked it.
By next year, states must have established systems in place to monitor and enforce broker rules. California’s rules take effect July 31. The only exception to the testing requirements is for mortgage brokers at federally regulated lenders, who have been exempted because they are “already regulated and overseen by a number of federal agencies,” Sen. Dianne Feinstein, D-Calif., co-sponsor of the law, told Bloomberg.
Under the provisions of the SAFE Act, the Conference of State Bank Supervisors has been assigned responsibility to maintain the licensing system and national registry for brokers. Pete Marks, vice president for mortgage-testing programs at the CSBS, told Bloomberg that so far about 71 percent of people who have taken the national broker exams have passed on the first try.
Brokers impacted by the SAFE Act also face new regulations from the recently passed financial regulatory reform bill. Under provisions of the financial overhaul bill, brokers’ fees will be capped at 3 percent for most loans to eliminate incentives to issue costlier and riskier mortgages. Also, adjustable-rate mortgages won’t be allowed for borrowers who can’t afford to repay the maximum cost of the ARM based on current income, according to Bloomberg.