If you’ve never purchased a home before, your intuition may tell you the best place to start is your local bank.  However, what seems like an obvious choice may put you in a bad situation for the next 30 years.

Passed on July 30, 2008, the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act was created to develop and maintain a federal registration system for individuals and businesses engaged in originating residential mortgage loans.  Subsequently the Nationwide Mortgage Licensing System (NMLS) was established and has been operational since January 2011.

At first glance this law appears to meet its goal of enhancing consumer protection and reducing fraud through the setting of minimum industry standards for the licensing and registration of licensed mortgage loan originators.  All loan originators, regardless of employer, are required to register with and provide fingerprints to the NMLS for submission to the FBI for a criminal background check.  The registry is available to the public – anyone interested is able to look up employment, address and licensing information on individuals and employers at www.nmlsconsumeraccess.org.

The SAFE Act has additional requirements to further assist in increasing protection and reducing fraud, including pre-licensing education, additional annual education and passing a written qualified test.  However, one major issue with the SAFE Act is these additional requirements only apply to state-licensed mortgage loan originators.  Originators employed by an insured depository or its subsidiaries are not required to take any education or pass a test.

The lack of education and an exam for insured depository originators causes the SAFE Act to fall short of its goals.  It’s possible and likely that individuals not capable of passing the required exam will simply apply for employment at a local bank where they aren’t required to take the exam in the first place.  Further, the lack of continued education means originators at depository institutions may not be up to date on the ever-changing mortgage industry.

For anyone interested in purchasing or refinancing a home, be sure to consult a state-licensed originator that meets ALL of the requirements of the SAFE Act.  You can be confident they are putting you in the best situation for your individual scenario and you’re not dealing with an originator that wasn’t able to pass the exam.

(Guest Post written by Jen Conley, a Benchmark Partner and Ohio VA Loan Specialist)