Secured Loan Originators
An originator is someone who finances a loan with the expectation that he or she will make money off the interest. This person is not responsible for checking a person’s credit history, nor does he or she take a credit application.
Not only can secured loan originators invest in the financing of real estate, but they can also invest in the property itself. However, an originator of a mortgage does not work for the creditor. He or she simply finances the loan once the application has been approved.
According to current government regulations, a person is considered a loan originator if he or she has financed the mortgage of more than three properties within a 12-month period. And he or she must not be involved in the construction of the property.
The loan itself is also required to have the following:
- It must be fully amortized.
- The person taking the loan must have the means to pay it back.
These requirements are designed to address certain risks of lending money.
Fixed-Rate vs. Variable-Rate Mortgages
Mortgages come in two different forms: fixed-rate and variable-rate. There is a difference between the two; and depending on the circumstances, one may be preferable to the other.
In a fixed-rate mortgage, the interest rate stays the same throughout the life of the loan. It never changes, even if there is a change in the market. In most cases, this will be the preferred option, as it could keep your interest from skyrocketing in the future.
With variable-rate mortgages, the interest rate can change in accordance with market fluctuations. If interest rates go down, your rate could fall. While this scenario may sound appealing, it’s a double-edged sword because it could easily work the other way around.
The Secure and Fair Enforcement for Mortgage and Licensing Act (or S.A.F.E. Act) has been in effect since 2008, and it has created a “federal registry” for individuals and companies that are involved in the financing of business and personal loans. Originators are required to register, and the same is true for the companies and individuals that are associated with them. Each person or company that enters the registry will receive a “unique identifier,” which they will have regardless of where they may move to in the future.
According to the S.A.F.E. Act, every state is required to have some sort of licensing in place for secured loan originators, and the registry should include the following information:
- Criminal history
- Credit history
- Educational background
- Any continuing education after the license has been issued
- Net worth
The purpose of these regulations is to protect consumers from fraud or any other unfair practices by setting certain standards for people who finance mortgages and other loans associated with real estate. Any person who applies for a license must pass a written test before it can be issued, and he or she must also submit to a federal background check through the FBI. States are also required to get a credit report on every individual who applies for a license.
Consulting a Real Estate Attorney
If you are a secured loan originator, you could be subject to certain legal risks, so it’s important to protect yourself from certain liabilities that are associated with financing these types of loans. It’s always in your best interest to talk to an attorney to help you with certain legal matters associated with real estate transactions or investments.
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