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page 27 AUGUST 2014 • VOLUME 19 • ISSUE 2
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Surprising changes in the mortgage market try was in desperate need of some regulation.
By Riki Markowitz
A
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nyone who has worked in real estate for any significant amount of time knows that this is a fluid business. New laws, specifically those implemented following a bubble-to-burst cycle, are proposed, debated, and implemented all the time. But over the past few years, changes in mortgage banking have been particularly difficult to navigate. The reason is because we’re only now recovering from one of the biggest housing bubble crashes of the 20th and 21st centuries. In order to get to a place of full recovery, the indus-
Licensing Restrictions When it comes to surprising developments in the mortgage banking industry, it’s probably best to begin at the beginning. Up until recently, seemingly anyone could pay a paltry fee and get a license. There’s no doubt that a lack of oversight led to so many unqualified buyers getting their name on a home deed. Today, individuals on a path to becoming a mortgage broker must have a specific number of continuing education credits and take a state and national exam. In Texas, the licensing cost for a mortgage loan originator (MLO) jumped 60 percent to $400 – not counting pre-application charges, the cost of education, and more. These changes are actually welcomed by existing brokers. Dominik Kilpatrick, a lender at Sente Mortgage who has been in the industry for over 12 years, ticks off even more licensing requirements, “There’s a background and credit report check. If someone has a crimi-
nal history, you can’t be in the mortgage industry anymore. You used to be able to pay $250 for a state license and just call yourself a mortgage broker.” According to Champions School of Real Estate, prior to 2010, there were an estimated 35,000 licensed mortgage brokers and bankers in Texas. As of April 2014, there are 15,824 MLO’s in the state.
Consumer protections Now that those in charge of originating loans are more qualified than ever, will that lead to improvements that the industry so desperately needs? Not necessarily. But the Consumer Financial Protection Bureau (CFPB) has also been working to make the industry safer for buyers. The full range of regulations was only just implemented over six months ago. While the agency’s goal is to reduce buyer risk, in actuality, criteria for disclosing, closing, and qualifying for a mortgage has essentially blocked more
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people from becoming a homeowner. It’s also made life more difficult for mortgage brokers. Gena Caudle, president and owner of GoodLife Mortgage, has been a broker for 15 years. “From a business perspective,” says Caudle, “the regulatory changes have been extremely cumbersome, even for a strong business. We’ve seen our expense to originate a loan increase by more than 25 percent while our margins were cut almost in half.” The changes implemented by the CFPB sound benign enough. New mortgage rules protects consumers by requiring that lenders determine home buyers are qualified for the full terms of their loan, not just teaser rates. According to the CFPB, “That means the lender will check and verify your income, assets, debts, credit history, and other important financial information.” By all means, the experts agree, changes were in order. Now, however, qualifying for a loan is almost too black and white. “Loans are
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