The SAFE Act of 2008 is a form of legislation that has been batted around in Washington for years now. Lawmakers have long been frustrated with the payment of commissions to mortgage loan officers that are based on the cost of the loan to the consumer. In other words, the more lucrative the loan is for the bank (costlier to the consumer), the more money the sales person makes when the loan closes.

The question I’m posing for consumers today is this: Are you safer as a result of the SAFE Act? It’s a fair question. Let me give a little more information and perspective.

In overly simplified categories, the SAFE Act changed the mortgage industry in two main ways. First, it required its loan originators (the sales end of the business) to be licensed by the federal government. And second, it changed the way these sales persons could be compensated for the loans they originate.

First – licensing. Licensing is a good thing. Getting into this business today is supposedly not as easy because entrants are required to pass a test and a background check. Convicted felons, for example, will not pass. The relevant question however, is do all loan officers need to be licensed? The answer is no.

The reason for this is that banks and credit unions are exempt from the licensing requirement. Did you know that more than 80% of mortgage loan volume is done through a bank or credit union? That means, odds are, your loan officer today is not likely to be an “safer” than before the SAFE Act.

I am not one who normally agrees with the government, but I think that licensing loan officers is a great idea and was long over due. It should simply apply to all who are involved, rather than to just some.

The second change since the SAFE act has to do with how these loan officers are compensated. Stay tuned for my next post on that one.

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The appraisal process can prove frustrating and time consuming for scores of prospective home buyers.

In turn, many appraisers have gotten a bad rap in recent months.  To help consumers better understand the process and the role of appraisers, the Appraisal Institute recently published a list of tips. Based in Chicago, the Appraisal Institute is an association of more than 24,000 professional real estate appraisers.

The tip sheet comes at a time when some appraisers are taking heat,  blamed at times for potentially costly delays and even for prolonging a decline in real estate values.

“Appraisers today are doing the same thorough, fact-based research and analysis they have always done,” Institute president Joseph C. Magdziarz said in a news release. “Appraisals are especially important because they are an objective and unbiased source of information. Unlike others involved in real estate transactions, the appraiser is an independent professional who performs a service for a fee rather than for a commission.”

The institute points to standard market declines and subsequent lender caution as the driving force behind some mortgage processing delays.

Here’s a look at some of the Appraisal Institute’s tips for consumers:

To learn more, consumers can download the Appraisal Institute’s checklist (note: this is a PDF file) via its website.

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Essentially, the government wants to ensure that banks and lenders who write higher-risk mortgages actually retain some of that risk (5% to be exact), instead of selling it off to investors and wiping their hands clean of it.

After all, this originate-to-distribute model was arguably how we got into this mortgage crisis to begin with.

However, since the legislation was introduced, banks and industry players have come up with a number of ways to be exempt from this new rule, including:

“requiring documentation of income and assets, setting debt-to-income ratio standards, and restricting things like prepayment penalties, balloon payments, and negative amortization.

But Wells wants to take it one step further and ask that both those purchasing and those refinancing have 30 percent down payment/home equity.

Critics (including most other banks and lenders) believe this will lead to a large pool of loans subject to the five percent risk retention rule, greatly increasing mortgage rates.

In fact, the MBA believes rates could be as much as three percentage points higher on loans subject to the rule.

FHA loan lending would also increase because it’s not subject to the risk retention rule, putting more strain on taxpayers.”

Wells Fargo argued that half of mortgages already carry a 30% down payment, but critics believe the move could shut out smaller lenders and increase market share for the top banks, who already have plenty.

If down payment requirements/mortgage rates do rise, it could throw a wrench in the housing recovery everyone’s hoping will get underway this year and next.

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