The Consumer Financial Protection Bureau wants to level the playing field so that all mortgage loan officers, whether they work at a bank or a mortgage brokerage, undergo similar training and meet the same standards for character, fitness and financial responsibility.
The bureau plans to issue a proposal this summer to “help level the play field for different types of loan originators so consumers could be confident that originators are ethical and knowledgeable,” CFPB said.
Agency officials want to finalize the new professional standards by the end of January 2013.
Establishing uniform standards would remove some of the differences between bank LOs and state-licensed LOs that were created by the Secure and Fair Enforcement for Mortgage Licensing Act.
Congress passed the SAFE Act in 2008 requiring the registration of all mortgage loan officers.
Depository institutions and their mortgage subsidiaries employed 379,600 registered LOs as of March 31. The first-quarter National Mortgage Licensing Systems’ report showed 105,600 state-licensed LOs.
To get a state license, LOs have to complete a 20-hour course and pass a state and national test. They also have to go through a credit and criminal background check.
Banking trade groups opposed any testing or licensing requirements for bank LOs. Since banks generally have their own training programs and are more tightly supervised than state lenders, Congress simply required the banks to register their mortgage loan officers on the National Mortgage Licensing System and Registry. Bank LOs must undergo a criminal background check, too.
As part of the Dodd-Frank Act of 2010, Congress transferred jurisdiction over the SAFE Act from the Department of Housing and Urban Development to the CFPB.
It will be interesting to see if the bureau proposes a testing requirement on bank LOs.
Such a change would make it easier for bank LOs to secure a state license if they want to jump ship and work for independent mortgage company.
The transition is not all that difficult now (as several readers have pointed out to this reporter since my last story on this issue). Nearly three dozen states have a “de novo inactive” license that allows an LO to complete all the state licensing and testing requirements while working at a bank.
No license is issued until the LO actually resigns from the bank and goes to work for a state-licensed lender.
In other states, a bank LO can complete the state education and testing requirements in one to two weeks. Then it depends on how long it takes the state regulator to process and approve the application.
To meet the 20-hour education requirement, a LO can sign up for a five-day webinar that provides four hours of instruction each day, according to one regulator who did not want to be identified.
An applicant can take the tests in one day. “It’s a misconception on how hard it is to transition,” the regulator said. “It’s not hard.”
Conference of State Bank Supervisors executive vice president Bill Matthews agreed. “If I’m in good standing, it is pretty easy to transfer from a bank to a state-licensed lender,” he said.
But it does take longer if an applicant fails the test or the credit report and the criminal background check turns up problems.
If the applicant fails the test, they have to wait 30 days to take it again.
One former mortgage broker who currently works for a bank noted that the bank’s mortgage regulatory training and continuing education requirements are extensive.
“It’s a bit unfair to bank LOs as having it easy compared to broker LOs,” he said. “Just about anyone who can pass muster at a bank can work for a broker if they complete their national and state exams,” the bank LO said.
