Must Home Mortgage Brokers be Licensed?
Regulations, Training, Credentials Differ for Lenders in Each State
Aug 31, 2009
While the recent sub-prime lending crisis has trained a spotlight on practices by mortgage lending companies, the individuals called mortgage brokers are not all subject to scrutiny by any government agency.
There are two kinds of lenders: mortgage bankers, who work for actual banks, and mortgage brokers who serve both the lending company and/or bank and the consumer, or home buyer.
The National Association of Mortgage Brokers (NAMB) defines a mortgage brokers as “an independent real estate financing professional who specializes in the origination of residential and/or commercial mortgages. A mortgage broker is also an independent contractor who markets and originates loans offered by multiple wholesale lenders.”
The Mortgage Bankers Association stresses that a broker is “defined as ‘a person (not an employee or exclusive agent of a lender) who brings a borrower and lender together.’” In contrast, this association says “it is well understood that a mortgage banker is essentially a vendor looking to sell a mortgage at a price that is both competitive and profitable.”
Both industry groups note that what home buyers may not realize is that a mortgage broker does not work exclusively for the buyer or the company that underwrites the loan. As the go-between, brokers are allowed by law to collect fees from both the lending company and the home buyer.
More Mortgages for Homes Arranged by Brokers than Bankers
In the United States more than half the mortgage loans are made by mortgage brokers. According to an article on bankrate.com, “Brokers often boast that they have access to a broader range of loan programs because they work with multiple lenders.”
However, this 2003 article by Holden Lewis quotes Bob Walters, described as “a banker who is vice president of Quicken Loans,” as saying “"The thing about brokers that bugs me the most is there's no regulation.” Added Walters, “"A lot of them sold cars three months ago. They are on the fringe.”
It is true that at the outset of a mortgage, the mortgage banker represents an institution that puts its own money at risk in a loan. But typically loans are often packaged in bundles and soon sold by banks into a secondary market.
Brokers May Not Need College Degree
There are no fixed set of credentials, qualifications or licenses that all mortgage brokers in the U.S. must have. NAMB has three levels of credentials that a broker may obtain after meeting “certain requirements of experience and knowledge and passing a written exam.” But for the entry-level certification a broker needs no prior experience, just a high school diploma or equivalent.
The NAMB says its industry “is regulated by 17 federal laws and numerous state and federal regulations.” Brokers must operate under regulations issued by RESPA, the federal Real Estate Settlement Procedures Act.
Still, each state sets requirements for a mortgage broker license. Some states have no licenses and no requirements. Others require mortgage brokers to meet minimum educational levels and or in Bankrate.com’s words, “demand proof of sound financial footing.” Mortgage News Daily has state by state links to mortgage broker requirements.
In summary: mortgage brokers may have special credentials but licensing differs among the 50 states.
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