It’s Suddenly Much Easier to Qualify for a Refinance of Your Home Mortgage

Refinancing has been all the buzz this year. Many homeowners have taken advantage of record-low rates to refinance their homes. Unfortunately, lower-income borrowers, especially those who lost income streams due to Covid-19, were unable to refinance because of income requirements. According to the Federal Housing Finance Agency (FHFA), over two million families could not refinance in 2020 when they might have benefited from it. As of June 5, 2021, this is no longer the case. Lower-income homeowners may now potentially save hundreds of dollars per month on their mortgage under a government initiative called “RefiNow.”

I spoke with Jaxzann Riggs of The Mortgage Network to learn about this program.

We have all heard the term “refinancing,” but you may not know why someone might consider refinancing. Homeowners choose to refinance their mortgage for different reasons. Refinancing your home could allow you to secure a lower interest rate, which lowers monthly payments, to shorten the duration of your mortgage, to switch to a fixed-rate mortgage, or to access equity.

While refinancing may sound ideal for your situation, the process and guidelines post-COVID have been quite strict and restrictive. One important factor in qualifying for refinancing is your debt-to-income (DTI) ratio. Your DTI is the percentage of your gross monthly income that you pay each month towards your debt and other obligations, including mortgage, minimum credit card payments, car loans, and student loans. Traditional loans require DTI to be under a certain threshold to refinance — typically under a maximum of 44%. Many people, especially service industry workers and small business owners, lost their jobs and sources of income during the pandemic, and the regulation regarding DTI was an obstacle to refinancing. RefiNow may be able to change that.

RefiNow, Fannie Mae’s new refinance option, makes it easier for homeowners earning at or below 80% of their area median income (AMI) to refinance at a lower interest rate to reduce their monthly payment. This new program is designed to lower the barriers that keep low-income borrowers from refinancing, which have historically resulted in those borrowers refinancing at a slower pace than higher-income borrowers. With RefiNow, you are allowed to have a DTI of up to 65% (instead of 44%) and you will be given an appraisal credit of up to $500. The new program does not just benefit homeowners, it helps lenders because it improves the probability that homeowners who may have been struggling to make their current payments will be able to make future payments, resulting in fewer pandemic related foreclosures. Don’t despair if your loan is owned by Freddie Mac (FHLMC). Freddie is slated to offer a similar loan program in the next few weeks.

To qualify for RefiNow, you must have:

> A Fannie Mae-backed mortgage secured by a one-unit, principal residence. Unsure? Go to https://www.KnowYourOptions.com/loanlookup

> A current income at or below 80% of the Area Median Income (AMI) This varies by census tract, but your lender can look this up for you.

> Not have missed a mortgage payment in the past six months, and no more than one missed mortgage payment in the past 12 months.

> A debt-to-income ratio of 65% or less, and a minimum 620 FICO score (minimum 660 FICO score for manufactured homes).

> A reduction of at least $50 per month on the new loan and you may not access any of your equity.

If you are not sure if a RefiNow loan is right for you, reach out to Jaxzann Riggs at (303) 990-2992 with any questions and to discuss your best options.

What Are Your Options When Approaching the End of Mortgage Forbearance?

As unemployment surged during the early months of the pandemic, many homeowners found themselves taking advantage of forbearance programs offered by their mortgage servicer. At the end of February, roughly 2.5 million homeowners in the U.S. were still in forbearance plans. I sat down with Jaxzann Riggs, owner of The Mortgage Network in Denver, to learn about what options are available for those who are approaching the deadline for exiting forbearance.

For homeowners who may still be experiencing financial difficulties, extending their forbearance plan may be a possibility. However, an extension will not happen automatically. If you are in a forbearance plan that is close to expiring, you should reach out to the company that services your mortgage to see if you are eligible to extend forbearance.

Whether you qualify for a forbearance extension depends largely on your loan type and when you originally entered forbearance. If your loan is backed by Fannie Mae (FNMA) or Freddie Mac (FHLMC), you must have entered into your forbearance plan by February 28, 2021. If your loan is backed by the FHA, you must have entered forbearance by June 30, 2020. Once forbearance ends, the best course of action depends largely on your personal circumstance and loan type.

Borrowers with a FNMA or FHLMC loan can opt to pay the “past-due” amount in a lump sum and have their loan reinstated if they are in a financial position to do so. For those who have loans through Fannie and Freddie but are not able to pay off their forbearance amount immediately, there are several options. If you can afford a few hundred dollars on top of your typically monthly payment amount, you should speak with your servicer about entering a repayment plan for a specified time frame.

For borrowers who have found themselves in a different financial position than they were prior to the pandemic, putting several hundred additional dollars a month towards a mortgage may not be possible. In that case, you may be able to enter payment deferral, in which you resume your typical monthly payments and the past due amount is added on to the end of the loan. You can also talk to your loan servicer about a loan modification, in which the servicer agrees to lower the interest rate, forgive a portion of the principal, or otherwise adjust the loan. Note, however, that a loan modification will negatively impact your credit history.

Borrowers with an FHA loan have several options, the most straightforward being to simply resume monthly payments. The FHA considers the past due forbearance amount as an interest free second loan, meaning that the payments are essentially deferred until the end of your loan term. If you are not in a position to resume your full monthly payments, you should speak with your servicer about a loan modification in which your interest rate will be lowered and loan term extended.

For those with a VA loan, a repayment plan or loan modification may be the best course of action. Although the VA does allow deferment as an option, it does not require that its loan servicers provide it.  For borrowers with a nonconforming loan (jumbo) there are no specific guidelines regarding forbearance. Some loan servicers may have chosen to offer forbearance, but they are not held to the same guidelines as other loan types.

Navigating your options as forbearance comes to an end can be tricky, but you do not have to face it alone. You may find it helpful to speak with a housing counselor before calling your loan servicer. The U.S. Department of Housing and Urban Development, or HUD, offers a list of approved counselors by state on their website.

And for any mortgage scenarios you may have, as always, I recommend calling Jaxzann Riggs of The Mortgage Network at 303-990-2992.

Division of Real Estate Warns Homeowners About ‘Equity Skimming’ Schemes

By now, we should all be wary of people offering to “help” us financially, usually via the internet or email, but also by phone.  As the saying goes, “If it sounds too good to be true, it probably is.”

Last week the Colorado Division of Real Estate (DRE) issued a warning about scammers cheating homeowners out of their home’s equity on the pretext of helping them pay HOA liens on their home.

Yes, an HOA can place a lien on your home for failing to pay your HOA assessments or fines, and an HOA lien takes priority even over the lien of your mortgage lender.

It is possible for an HOA to foreclose on your $600,000 home because of unpaid dues or fines, no matter how small. But if you can’t pay, what do you do? Those liens and subsequent foreclosure actions become public records, making you an easy-to-find target for a scammer wanting to “help” you.

Here’s a link to the full DRE warning. It describes several scamming scenarios. According to the DRE’s warning, those scenarios “can leave a homeowner losing their property, becoming a renter in their own home, having their credit rating severely damaged, and having the possibility that the lender may pursue a deficiency judgment against them if the property is foreclosed upon, as well as the HOA pursuing a personal judgment against them for unpaid HOA dues.”

Homeowners are urged to look for the following red flags:

>  Anyone wanting you to act fast with a quick-fix to your financial difficulties.

>  Promises to resolve your financial problems and to leave your cares behind.

>  Someone wanting you to transfer your ownership in the property to them.

>  Anyone asking you to sign a power of attorney for them to act on your behalf.

> Proposing that you’ll be a tenant in the home that you now own.

>  Someone telling you that there is no need to consult with an attorney, accountant, real estate broker, lender or anyone else.

Feel free to contact me if you find yourself in this or a similar situation. My intention is not to convince you to list your home with me. I just want to give you my own layman’s feedback on what others may have told you, and I can, if appropriate, refer you to a trusted real estate attorney. First, however, read that DRE warning, which has lots of useful information and links for reporting suspected scams or getting other advice.

And, as I like to say, remember that “Google is your friend.”  When contacted by someone you suspect could be a scammer, do a web search for the person and/or company and/or email address and/or phone number. Also, we have a special app called “Forewarn,” only available to licensed Realtors like myself, where I can instantly search by name or phone number. My broker associates and I use that app to check out people who want to do business with us, instantly learning their age, properties owned, bankruptcies or liens, criminal charges, and even cars they own.  I’m happy to do such a search for you, too.

Lastly, I’d like to put in a good word for my cell carrier, T-Mobile.  My previous cell carrier was AT&T, which didn’t provide Caller ID on people not in my contact list, but I do get Caller ID with T-Mobile. If a number does not have a name associated with it, I let it go into voice-mail, and those callers rarely leave a message, suggesting, I believe, that it was a “spoofed” number by a solicitor or scammer. Thank you, T-Mobile! I’m wasting a lot less time than I used to on answering unwanted calls.

‘Equity Sharing’ Concept Not as Smart as a Home Equity Line of Credit

A reader brought to my attention a company called Noah (formerly Patch Homes) which offers an alternative to the Home Equity Line of Credit (HELOC). What they offer is a way of tapping into your home’s equity for needed cash in return for a percentage of your home’s equity — reportedly between 15 and 40%. You don’t pay for this “loan.” Rather, Noah shares in your home’s appreciation (or loss of value) when you sell.

While I don’t consider Noah’s offer a scam, I think it should only be considered as a last resort. In the long run, a HELOC is a much better way to access the equity in your home, and credit unions are the best places to secure such a loan, in my experience. Here’s a third-party review of Noah’s “equity sharing” concept.

The Good, the Bad, and the Ugly About Mortgage Loan Forbearance

A record number of homeowners entered into a forbearance plan for their mortgage over the past year amidst the Covid-19 pandemic. Forbearance — an option that allows borrowers to pause payments on their mortgage for a limited amount of time due to an unforeseen hardship — served as a veritable lifeline for many people who found themselves unexpectedly out of work and unable to pay their mortgage as COVID restrictions tightened.

As more time passes, however, it is apparent that issues stemming from forbearance are starting to surface. While this is not an immediate cause for panic if your own mortgage has been in forbearance, being aware of issues that others are facing will help to keep you prepared for any trouble that arises.

For that reason, I had a Zoom meeting this week with Jaxzann Riggs, owner of The Mortgage Network in Denver, to learn more about complications that forbearance may bring about.

When the CARES Act was initially passed back in March 2020, it included a provision for mortgage forbearance, making it relatively easy for millions of borrowers with government backed mortgages to enter into such a program. Fannie Mae and Freddie Mac, the two largest servicers of government backed loans, subsequently issued an extensive list of guidelines for lenders in response to Covid-specific forbearance.

One of the most crucial guidelines involved credit score reporting. An account in for-bearance must continue to be reported as current, provided it was current prior to the forbearance plan. Due to the vast number of people who entered into forbearance in such a short time period, it is especially important to monitor your credit score — but that is not necessarily the end of the story.

Some borrowers who were previously in forbearance that are now applying for new loans are discovering that their issue does not lie with the credit reporting bureaus themselves but with the underwriting on their new loan. Underwriters, who are primarily responsible for qualifying a borrower for a loan from a specific lender, have a significant amount of discretion when it comes to approving an application. The consequence of this is that borrowers who would otherwise be well qualified to purchase — with high credit scores, steady employment, and a significant down payment — may find themselves struggling to obtain the loan they are seeking if they previously had a loan in forbearance. Although Fannie’s and Freddie’s guidelines include specifics for underwriting, the sometimes unfortunate reality is that these guidelines can be interpreted differently by different underwriters.

If you had a loan in forbearance sometime this past year and are now considering a new purchase or refinance, you should not immediately despair. Maintaining meticulous records that indicate when you initially applied for forbearance and being able to produce all communications with your current lender to the new lender are essential. If you have entered the repayment phase of the loan it is critical that the repayment agreement is followed exactly as written.

Because forbearance was originally intended to help those that had a loss of income or employment due to COVID, underwriters are scrutinizing employment history and the likelihood of it continuing for all borrowers. Borrowers that did not have any change in employment status during the pandemic but who entered into a forbearance agreement should be prepared to outline for the new lender their motivations for entering forbearance and to additionally explain how they will be able to avoid forbearance in the future. This is a bit ironic, in that lenders strongly encouraged many to utilize the options afforded them under the CARES Act. If you have questions about how forbearance may impact your future lending, I recommend, as always, that you consult Jaxzann Riggs of The Mortgage Network. You can reach her anytime on her cell phone, 303-990-2992.

We Can All Learn From Studying Racism’s Role in the Evolution of Local Zoning

No one can deny that racism has played a role in housing, as it has in virtually every aspect of society since the founding of our country. Like me, however, I bet you’ll learn some things you didn’t know from this study of racism in zoning written by my friend, Don Cameron. While this study is of the City of Golden, it would be fair to say that it reflects the evolution of zoning throughout the country. Click here for Don’s full report with artwork, photos and footnotes.

A History of Golden Zoning

Golden Colorado circa 2020 has zoning that is best described as Euclidean, named after a court case in Euclid, Ohio. Euclidean zoning prescribes various areas in town to have various uses by right, and other uses that can be obtained by special permit.

Prior to that court case in Ohio, it was not clear that the government had a role in regulating land use, and individual landowners could pretty much do what they wanted. But in 1922 the Supreme Court ruled that municipalities had the right to regulate land use.

Golden’s history of zoning was initially one of mutual agreement between the town’s settlers and the city in laying out streets, creating easements for streets and utilities, but generally leaving land development to the individual owners. This sort of planning resulted in building on some lots that don’t meet current lot minimums, a variety of housing types and a mix of commercial and residential uses in some areas.

From 1954 onward, though, this mix of uses did not fit neatly into the districts that were created. Because of the mix of use types that already existed, some areas were zoned as commercial even though they had a large proportion of housing that was built as single family homes.

Other areas were zoned for higher density in anticipation of growth that in some cases still has not come. Later developments were zoned planned use development (PUD), with uses identified that were specified on the plats and may have included mixed use.

In parallel to this history there were also restrictive housing policies that were in place in Jefferson County, including Golden. Specifically, redlining was a practice put in place at the federal level by the Home Owners Loan Corporation in 1938.

Redlining defined areas where federally backed loans could  and could not be obtained. Golden itself had no redlining map, but let’s look at Golden’s history.

From the 1880s and into the 1920s property owners could pretty much do what they wanted. There were no explicit covenants preventing Blacks or non-Caucasians from buying or building in Golden. However, the 1920s also saw our government filled with KKK members and sympathizers and a reduction in Black (Negro at the time) residents in Jefferson County.

While Blacks in the county and city were few in number in the 1920s, nonetheless the KKK burned crosses on South Table Mountain’s Castle Rock formation above where Coors’ tourist parking lot is now.

There was a measurable racist element in the population, and there was not a welcoming environment. The plats were already written, and the residential land use defined, so there was little “need” to be racist in zoning because there was no demand (that is, few black people lived in Golden).

This “lack of need for racist/exclusionary zoning” changed, however, in the late 1930s amid the boom leading up to World War II.

Again, land use at the time was mostly protecting individual property rights. While the Supreme Court had ruled that cities could control land use, there was a very hands-off approach to this. So the “law” was on the side of homeowners.

Starting in the 1920s and into the 1940s it was common for people in many areas of Jefferson County to say they’d only sell their property to those of the Caucasian or other non-Negro races.

The courts backed up this right because they were protecting homeowners’ use of their land and had no civic duty to prevent this discrimination. Blacks were excluded from being shown properties in these restrictive areas, and. if they tried to purchase them, they might have it taken away soon after.

In 1942 there was the case of a Black family trying to build a new development and victory garden near what is now Boyd Street. The family said they would put in all the utilities required to government code. Still, white citizens of Golden protested. The following article appeared in the October 22, 1942, edition of the Golden Transcript:

Citizens Protest to City Council

    A large number of citizens appeared before the city council Wednesday evening, and stated that a group of colored people had taken possession of the land recently purchased by them east of the Clark’s Garden addition, within the city limits of Golden, and were apparently staking out some proposed building sites. These citizens protested to the city council the starting of a colored settlement in Golden.

It was pointed out in the meeting that the sale of the property had been approved by the county court on September 24, and that the purchase price for the 30-acre craft was $1,500, not including some legal and abstract of title cost…

The article went on to say that at the mayor’s direction, a citizen’s committee was formed to negotiate with the FHA to not allow this sale to go through and not fund it, claiming the cost of extending utilities would be burdensome. One of the citizens appointed to this committee was Casper Bussert.

Golden had few areas that were not platted, but when a new plat was put in for the Sunshine Park Addition in 1944, by this same Casper Bussert, he added a deed restriction limiting ownership to Caucasians.

While this would seem to violate the 14th Amendment, the Supreme Court had already ruled that the 14th Amendment was about states not discriminating based on race, but was silent on individuals’ ability to discriminate. However, in the late 1940s the NAACP and others started pushing back on these covenants using the following argument: If a black person were to buy a restricted property and then the state were to enforce the covenant, that would constitute a violation of the 14th Amendment, which eliminated slavery and gave Blacks the right to buy and own property.

In 1948 the Supreme Court ruled that these types of covenants were no longer enforceable. Almost immediately, and certainly by 1950 one sees a complete change to the covenants created in Golden and surrounding areas. Rather than explicitly restricting an area to whites, there were new restrictions excluding those without access to capital. Enter classism.

Even though redlining was no longer permitted, there were (and are) limits on Blacks’ ability to get loans on favorable terms. Some loans, for example, were interest only for the term of the loan, so one did not gain any equity until the loan term ended. Failure to make even one payment could result in “owners” losing their homes with no equity.

When new restrictions were put in place by the FHA, they targeted people without access to loans. An additional clause that targeted families with kids was the Nuisance Clause, which limited activities based on the opinion of the architectural control committee.

R1 (single-family) zoning, as laid out in the city code, shows a direct evolution from racist covenants to restrictive covenants to exclusionary zoning, all of which kept housing out of the hands of Blacks.

The legacy of this is the noticeable and persistent wealth gap in this country. Blacks, by being excluded from homeownership, have not been able to build wealth, escape blighted areas, or enjoy integrated schools. Because school funding is typically based on property taxes, school districts are  self-segregated by wealth and thereby race.

In summary, Golden’s history follows the narrative of the country with respect to race. Land planning and zoning may be silent on race, but the effect of both planning and zoning continues to exhibit, in its end result, the heritage of systemic racism, to the detriment of Blacks in particular.

Email response received from Michael Nosler:

Jim, as always, your article was very interesting and timely as we must be reminded of our country’s  systemic racist policies that contribute to the discord we experience today.  I have a couple of other examples.  First, the FHA was the driver for much of the single family homes constructed in suburbia during the 50s and 60s.  It’s underwriting policies in the early days, mandated that “the neighborhood be homogeneous (segregated), with that homogeneity preferably assured through racist restrictive covenants, for which the FHA helpfully supplied forms.” Michael Carliner, Development of Federal Homeownership Policy, Housing Policy Debate9,no.2(1998)at 299-321.  As quoted in Concrete Economics by Cohen and DeLong 2016 at p.96.  In addition, I’ve read, but cannot remember the source, that the VA lending policies were similar.  As a consequence, black GIs returning home, could only get loans for properties located in black communities(inner city residences) and thus were not able to build up the equity in their homes like the white GIs who were able to buy new homes on the large lots in suburbia.

This “homogenous neighborhood” requirement in federal lending practices prevented the mixing of the races in modern  America, contributing to the racial divide we experience to this day.

Higher Loan Limits and Lower Rates Improve Affordability for Homebuyers

By JIM SMITH, Realtor

Both the Federal Housing Authority (FHA) and the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, have been in the headlines in the past couple weeks with their respective announcements that they will be raising mortgage loan limits for 2021. I exchanged emails with Jaxzann Riggs, owner of The Mortgage Network in Denver, to learn more about loan limits and what their implications are for potential purchasers. Here’s what I learned from her.

Jaxzann Riggs

Although loan limits have been around for many years for both conventional loans (loans that conform to Fannie Mae and Freddie Mac’s loan standards) and FHA loans, (loans insured against default by the Federal government) the Housing and Economic Recovery Act (HERA) of 2008 has largely shaped how we know them today. The 2008 act established a base loan limit of $417,000 for conventional loans and, due to the declining price trend in the real estate market at the time, also included a mandate that this baseline limit would not increase until prices rose to previous levels. In 2016, FHFA increased loan limits for the first time in ten years, and they have increased every year since. HERA also mandated that FHA set loan limits at 115% of area median house prices, with a floor and ceiling on both limits.

2021 will see conventional loan limits for single-unit properties increase from $510,400 to $548,250 as a baseline. High-cost areas (which always included places like Aspen and Boulder, but now also includes the metro area) have a maximum loan limit that is a multiple of the area’s median home value, up to 150% of the baseline. Denver, Jefferson, Adams, Arapahoe, Broomfield, and Douglas counties will all be seeing an increase from $575,000 to $596,850. Boulder county increases to $654,350. The increase in these limits means that more borrowers will be able to qualify for a conventional loan versus having to obtain a high-balance or jumbo loan, which typically come with higher interest rates.

It’s important to remember that purchase price does not necessarily correlate with loan limits. If a borrower plans, for example, to purchase a $750,000 property but puts a significant amount of money down, thus bringing their loan amount under the conforming limit, they can still qualify for a conventional loan.

The FHA has also increased loan limits for 2021, with a national conforming limit of $548,250. In the majority of the Denver metro area the loan limit has increased to $596,850, up from $575,000 in 2020. The FHA’s loan limit increases are tied closely to the FHFA’s conventional loan limit increases.

Although loan limits are most frequently mentioned in terms of single-family homes or one-unit properties, both conventional and FHA loans also impose limits on duplexes, triplexes and fourplexes. These increase at the same time and at the same frequency as single-unit loan limits. In the case of the FHA, which also insures Home Equity Conversion Mortgages —  also known as HECMs or Reverse mortgages — there will be a 2021 limit increase to $822,375. Unlike traditional loan limits, this increase applies across the board, regardless of what market the home is located in.

2021 is sure to be a year of changes, and mortgage loan limits are no exception. The increase in limits for both FHA and conventional loans matched with historically low rates and 3-3.5% down payment options just might be the ticket to purchasing your dream home.

Regardless of what loan type you are seeking, I recommend giving Jaxzann Riggs with The Mortgage Network a call today at (303) 990-2992.

FHA Raises Loan Limits — Now $596,850 for Metro Area

Not only are mortgage interest rates at historic lows but FHA has increased the amount of government-backed money you can borrow to purchase a home.

Currently, the FHA loan limit in the Denver metro area (except for Boulder) is $575,000, but it increases to $596,850 in 2021. That is the loan limit for one-family homes. You can use an FHA loan to purchase duplexes, triplexes and four-plexes. The new limits for those are $764,050, $923,600 and $1,147,800 respectively.

Those are the loan limits, not the purchase price limits. FHA loans are known for their low down payment requirement, currently 3.5% of the purchase price. The main drawback of FHA loans, however, is that they require mortgage insurance, regardless of how much equity you have.

I’ll have more about this topic in my monthly mortgage column on page 2 of YourHub next week.

Denver Has Among Nation’s Lowest Foreclosure Rates

ATTOM Data Solutions, the nation’s most comprehensive aggregator of foreclosure data, reported last week that the number of foreclosure filings in the 3rd Quarter (July-September) of 2020 was down 12% from the 2nd Quarter and down 81% nationally from the same quarter a year ago. Denver was down 89% and Colorado was down 90%. Only three cities and four states recorded bigger year-over-year declines.

The combination of foreclosure moratoria and forbearance programs was a primary contributor to these drops, so the question on many people’s minds is whether we’ll see a flood of foreclosure filings when these programs end sometime in the coming months.

In a press release, Rick Sharga of RealtyTrac, a related company, is quoted as follows:

“We’ll certainly see more repossessions by lenders once the foreclosure moratoria have ended, but maybe not as many as people might expect. Given the record amount of homeowner equity – over $6.5 trillion – it seems likely that many homeowners in financial distress will opt to take advantage of strong demand among homebuyers and sell their property rather than risk losing it to a foreclosure auction.”

The Licensing, Regulation and Ethics Requirements for Mortgage Loan Officers

By JIM SMITH, Realtor

In a recent column, I described the legal and ethical obligations that come with working in real estate, particularly as a Realtor. The mortgage lending industry has a similar obligation to protect consumers from unethical and fraudulent practices. Both industries are regulated by the Colorado Division of Real Estate, but the mortgage industry is subject to additional regulation on the federal level.

I spoke with one of my preferred mortgage brokers, Jaxzann Riggsowner of The Mortgage Network, to learn more about the subject. Here’s what I learned.

There are four main sources of mortgage financing for home buyers — credit unions, banks, mortgage companies and mortgage brokers. While there are many differences between each, the most significant is the additional training and regulation that mortgage  brokers must go through. Whereas “loan officers” or “loan originators” working at a bank or credit union are not required to be licensed, all mortgage brokers must be licensed at both a national and state level.

Registration and licensing (which are different) is completed through the Nationwide Mortgage Licensing System (NMLS), created in January 2008 in response to the housing market crisis occurring at the time. The Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act, enacted in June 2008, further mandated licensing by prohibiting individuals from originating loans without obtaining and maintaining their status as a licensed mortgage loan originator (MLO) through the NMLS, unless employed by a depository bank or institution such as Wells Fargo, Chase, Bank of America, to name just a few. All individuals originating mortgage loans must register with NMLS and obtain a unique identifier (NMLS number, which allows monitoring of performance), but not all “loan officers” must be licensed. While mortgage brokers must be licensed, loan originators working for banks are not required to complete the additional licensing and testing that mortgage brokers must go through. 

Before applying for a license, potential mortgage brokers must complete twenty hours of pre-licensing education, which consists of training on Federal laws and regulations, ethics, and general mortgage origination basics. Many states, including Colorado, require additional state-specific training.

After a prospective MLO has completed his or her pre-licensing education and passed the SAFE test with a score of 75% or higher, they are required to submit their credit report and their fingerprints for a criminal background check.  Only then can applicants apply for a license.  Once the individual has obtained their federal license, he or she is required to take additional classes to obtain their Colorado license, and there are annual continuing education requirements on both the state and federal level.

Another great benefit to working with mortgage brokers is that they must legally disclose all fees upfront, including how much they will be compensated for their services. By contrast, banks are not held to this same standard. Banks are not required to disclose how their loan officers are compensated.

The most important “take away” from this discussion is that it benefits the consumer to shop for a mortgage. In addition to the loan costs, ask your potential lender about their education, experience and licensing status. When working with buyers, I always recommend working with a mortgage broker for the reasons mentioned above. I recommend calling Jaxzann at 303-990-2992.