Lenders Must Pass Exams
It should be no surprise that the collapse of the housing market drew the attention of regulators to professionalize the lending industry. Let me go on record as saying that this is not a bad thing for the consumer. Like Wyatt Earp cleaning up the streets of Tombstone, the government has created new requirements to ensure that the lender you choose is qualified and to force out lenders who were incompetent, dishonest or both.
New Requirements
The new requirements entail education, testing and criminal background checks that must be completed by the end of June and each loan officer will have an individual number that will follow them throughout their career. This will be monitored by the National Mortgage Licensing System and will allow for tracking of complaints, defaulted loans and other important statistics. Those loan originators that do not adhere to the law can have their licenses revoked.
Requirements for Larger Financial Institutions
Large financial institutions, such as banks, and their loan officers are exempt from the requirement. This exemption can be good and bad at the same time. The loan officers from these institutions do fall under the larger regulatory umbrella of the bank and the institution is responsible for ensuring that their originators receive the ethics, loan and compliance training, as well that their employees are of the moral fiber necessary to do their job. This should give some solace to you, as these entities need to meet banking compliance requirements of which mortgages are subset. But without seeing the NMLS number, however, you have no guarantees as to the specific training or as to the background of the individual with whom you are dealing.
Look for the NMLS Number
I bring this to your attention now, because you should be vigilant to make sure that your lender is qualified to service you and your needs. As of the time I am writing this post, the overall pass rate for existing mortgage loan originators was roughly 67%, so you can see how important this is to make sure yours lender is qualified. If you decide to go with a bank, you have the good faith of the institution that all of their employees are compliant. If you go with a mortgage banker or broker, you need to look for their NMLS number. It is required on all advertising and official correspondence with you. For example, I put mine in my signature block to make it easy for my clients to see. If you do not see it or your lender dodges your questions regarding their licensing, I recommend looking for a different lender.
Thank you to [j]t’s for the photo, which he graciously offered via the Creative Commons License.
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June 18, 2010 at 4:03 pm
Doug,
I’m John Burroughs. Thank you for your advice on finding a lender. I recently got out of the Navy and my last assignment was at the Naval Academy. I still own a home in Annapolis and I’m trying to refinance to take advantage of the good rate. I think I may have found someone to give me a better rate (5.375 30 year), but I’m not sure yet whether or not I’m going to take it (I want to do more research). Here’s the cliff notes of my situation: I own a single family home that I closed in 2006. I currently rent it out. Most banks that I go to consider me an investment property owner, which means I need to put money down to refi. I don’t want to do that. This is the only home I own and I may move back there someday. I don’t want to sell it and take a loss, as I’m single and I’m willing to take the risk right now. Do you think any banks will be open to my situation in the near future (in time enough to take advantage of the rates)? Also, I didn’t take a VA loan yet. Would that be available to me (at no money down)? I currently owe $340,000.
Your help would be appreciated. Thanks again!
John Burroughs
June 19, 2010 at 10:33 am
The big question is whether or not the rent for the property is reflected on your 1040. Because you will need to supply this for the loan application, the underwriter will look at all of the sources of income. Rental income is typically reflected on Schedule E. If it shows up there, it will be an investment property. The only way it would not be an investment property is if you were relocating back to Annapolis in the near future and could document the reason for doing so. In this case, it would make logical sense that you are recategorizing the property as your primary residence and you would be able to refinance accordingly.