Is SAFE Act dangerous to certain professions?
Mortgage loans are not only harder to get these days, the word itself is becoming harder to say. In fact, for a whole host of professions – lawyers, Realtors and even stockbrokers – mum can often be the word.According to the state Banking Department, the broad seep of the SAFE (Secure and Fair Enforcement Mortgage Licensing) Act, may require those who become even slightly involved in the mortgage lending process to become licensed mortgage brokers in order to conduct business. This could include everything from professional referrals to some owner-financed residential sales.The SAFE Act, which was enacted in 2008, mandates national licensing of mortgage originators, among other things. It placed heavy pressure on states to pass companion legislation, which New Hampshire did in 2009.”It’s very tricky,” said Richard Arcand, of the state Banking Department, “We do not interpret” and when presented with scenarios he guardedly encourages, “read the SAFE Act.”But even lawyers schooled in legal minutiae are uncertain and have erred on the side of prudence.”There are so many interpretations,” said Michelle Radie-Coffin, an attorney and co-owner of Horizon Settlement Services, based in Concord. “Most New Hampshire attorneys are being cautious.”The goal of the licensing provision was to control the more free-wheeling mortgage brokers, who in the years leading up to the financial services industry collapse used little or no discretion in selling mortgages. But the SAFE Act’s definition of who can be considered a mortgage broker has proven to be so broad that it includes people working in many other industries, although it does not include depository banks. Since they are already heavily regulated, these traditional banks have been excluded and their individual mortgage originators are not required to pass a state and federal written exam, a criminal background check and a credit check, as the SAFE Act demands of others.But Realtors say deals that require owner financing are falling apart as sellers worry about such a deal’s legal ramifications. Attorneys say they are staying clear of assisting financially stressed homeowners who are trying to negotiate with lenders to avoid foreclosure. These people, they insist, are going without legal representation. Stockbrokers, who are employed by firms that also provide mortgage services, are being encouraged to become licensed as bankers.‘Doubled-edged sword’While lawyers are working to change the law to provide attorneys with broader exemptions from the act, Realtors are looking for more flexibility and clearer rules for seller financing.The federal Department of Housing and Urban Development, which has rulemaking authority, has been working on such issues for several months. Congressional leaders are asking HUD to address the owner-financed provision by permitting sellers to finance a few properties each year.Most mortgage originators welcome the idea of licensing as a way to improve the industry’s reputation and increase professionalism.Under the SAFE Act, they are required to pass a state and federal test, complete 20 hours of continuing education and undergo a criminal background and credit check.Since the beginning of the year, when the law went into effect, some 908 – one-third – of the mortgage originators in New Hampshire have left the industry, either by failing to pass the test or choosing not to get licensed.”Licensing helps the consumer” by putting all loan originators “on the same professional level,” said Sandra Gausch, president of the state Mortgage Bankers and Brokers Association.But, Gausch – who heads the compliance department at Merrimack Mortgage Company in Manchester – added: “It’s a double-edged sword.”The additional regulations hit smaller companies the hardest and may result in fewer mortgage companies and originators, which will mean less competition.Still, others feel the licensing requirement should include all lenders, not just mortgage originators.”It’s truly a quagmire,” said Joe Moriarty, president of Guardian Mortgage of Manchester. “The intent is great, but it’s not across the board.”The bottom line, said Moriarty, is that “this is a sales-driven process.”Sales impact?Few know this better than Realtors. They say complications slow sales and kill deals.Several pointed to sales that were not completed because a seller couldn’t get a straight answer about providing direct financing without becoming a licensed mortgage originator.”Restrictions on seller financing are clearly impacting the recovery of the residential real estate industry,” said Monika McGillicuddy, president of the New Hampshire Association of Realtors. “Too many transactions are being needlessly stopped.”Realtors – and to a lesser degree stockbrokers – also are being warned that they could get caught in the licensing trap if they become too involved in steering their customers or clients through the residential financing process.The New Hampshire Bar Association and the Realtors association are working to find a legislative remedy in the upcoming session.Rep. Steve DeStefano, D-Bow, who owns two Century 21 agencies in the Concord area, voted in favor of the state version of the SAFE Act, like the vast majority of his colleagues. “There’s a lot of gray area,” he said, “but the good was far better than bad.”