The recent foreclosure fiasco has left many mortgage borrowers wondering where to find an honest lender.

“Mortgage lending is a boom-and-bust industry, so some people who jumped onto the bandwagon during the housing boom may have had less experience than what is optimal,” says Doug Johnson, vice president and senior advisor, risk management policy at the American Bankers Association in Washington, D.C.

However, the recent housing meltdown may actually have improved the odds of finding a good, trustworthy lender.

“The recent cycle has left the most experienced lenders still in business,” Johnson says.

How can you find a good lender? One good approach is to find a “warm referral,” says William R. Howe, president of the National Association of Mortgage Brokers and president of Howe Mortgage Corporation in Scottsdale, Ariz.

“Ask your co-workers and family for a recommendation and then meet with two to four people until you find someone you are comfortable with,” Howe says.

Howe recommends that consumers follow up on these recommendations by checking for ratings and complaints with the Better Business Bureau and bank and credit union safety ratings.

Looking into a lender’s licenses and certifications — and asking the right questions — also can help you zero in on a good lender.

Licenses and certifications

Although requirements vary, all states mandate that lenders be registered or licensed. The Mortgage Bankers Association’s Home Loan Learning Center offers a list of state banking authorities.

The National Mortgage Licensing System and Registry, or NMLS, has a searchable database of licensed and registered mortgage lenders. The NMLS was established as part of the SAFE Act, or the Secure and Fair Enforcement for Mortgage Licensing, Act of 2008, which requires that all mortgage loan originators to be licensed or registered.

In addition, the SAFE Act stipulates that all lenders undergo a criminal background check and complete education and testing requirements.

“If a lender doesn’t have a license number, that should be a red flag,” says Gibran Nicholas, chairman and CEO of the CMPS Institute, a national organization that certifies mortgage bankers and brokers in Ann Arbor, Mich.

“However, lenders who work for a depository company, such as a bank or credit union, need only to be registered, not licensed.”

Many lenders earn certifications from associations, nonprofit groups and educational institutions.

NAMB has three levels of certification tied to the level of experience of mortgage brokers.

A General Mortgage Associate, or GMA, is a trained beginner mortgage broker, while a Certified Residential Mortgage Specialist, or CRMS, has at least two years of experience, Howe says.

After five years in the industry, a broker can become a Certified Mortgage Consultant, or CMC.

“Each certification also has continuing education requirements,” Howe says. “NAMB has a certification committee, too, so that if they receive a complaint against a member they can take away that certification.”

The Mortgage Bankers Association offers employees of member organizations a Certified Mortgage Banker, or CMB, designation after three years of experience and continuing education. A Master CMB designation can be earned after seven years in the business, while an Executive CMB designation can be earned after 13 years.

The CMPS Institute provides a Certified Mortgage Planning Specialist, or CMPS, designation to lenders who complete their program.

“Certifications mostly signify that a lender has a true commitment to the mortgage industry,” says Johnson.

Questions to ask a lender

When choosing a lender, many borrowers fail to look past mortgage rates. However, it’s important to ask questions about the lender’s background and knowledge.

“The first question to ask is how long the lender has been in business,” Howe says. “Ask if the lender has ever had to buy a loan back, which means that mistakes were made. The most important things you want to establish in the interview are whether you can trust the lender and receive good customer service and honesty.”

Nicholas urges borrowers to ask about a lender’s specific experience with the type of real estate transaction they are considering, such as buying a first home or refinancing. This is especially important if there is anything unusual in their circumstances.

“The housing industry is a dangerous place now, so you want to make sure you are given a list of client references that are similar to your situation,” says Nicholas.

Nicholas says consumers should ask lenders to explain the mortgage market and analyze trends.

“It’s important for a lender to explain everything in a way the consumer can understand, so that the borrowers completely understand their loan,” says Nicholas.

Johnson says all consumers should know that it is illegal for a lender to ask for fees to be paid up front.

“Borrowers are sometimes surprised by the variety of fees that need to be paid at settlement, so it is important to get a good faith estimate from several lenders and compare them to make sure you understand what you are paying for,” says Johnson. “Besides, the more comparative shopping and interviewing you do, the smarter you become.”

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Promoted Stories