A better system of loan officer licensing and training.
Eight years have passed since the adoption of the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act, and the mortgage loan officer (MLO) licensing system has become fully integrated into the industry. Some 408,000 licenses are active on the Nationwide Mortgage Licensing System and Registry (NMLS) and 80,000 more licensing exams were administered in 2015 alone. [paragraph] Today independent mortgage bankers have built their corporate onboarding and training policies around the new licensing regime. [paragraph] Yet, for many seeking to become a loan officer at one of these non-banks, the process still has some kinks that need to be worked out. I can speak of this from firsthand experience. A few years back, shortly after graduating from college, I decided to enter the mortgage industry and embark upon the NMLS licensing process myself. [paragraph] At the time, the industry was nearly as new to the process as I was. However, even eight years later, the system continues to create significant obstacles for those seeking to make the leap from a depository institution, returning to a non-bank after time away or entering the industry for the first time. As a result, the non-bank segment of the industry continues to miss out on opportunities to secure the best talent.
Transitioning from bank to non-bank
As independent mortgage bankers continue to gain market share and MLO turnover rates remain sky-high, more bank MLOs than ever are considering making the leap to a non-bank.
The reasons cited vary considerably--the new company may offer an opportunity to make a greater commission, better career prospects, quicker closings or more diverse product offerings. In other cases, the MLO is simply looking for a culture change.
Whatever the case, loan officers are not staying put. Currently, MLOs seeking to make the move have one of two options: they can attempt to complete their NMLS licensure while still employed at their depository institution (also known as a de nouo inactive license) or they can wait to begin the entire process once they are fully employed by their new company. Each of these methods has significant flaws that make completing the job switch far more burdensome.
Those who choose to complete their pre-licensure education, take the NMLS exam and submit an application for licensure while still employed at the bank, will find the process costlier and riskier than it needs to be.
Currently, only 29 states will even allow individuals to obtain a de nouo inactive license without the actual sponsorship of the employer. Even if the individual seeks licensure in one of the states that allows it, in many cases the NMLS application process is not shielded--meaning that a bank can monitor when one of its employees submits an application. Knowing that the MLO is on his or her way out the door, the bank may immediately terminate the MLO's employment.
In states that do not allow for a de nouo inactive license, the aspiring licensee would likely have to pay for his or her own surety bond at the time the license application is submitted--a cost many MLOs cannot afford. Clearly, this creates a barrier to MLOs moving from bank to non-bank.
Those who choose to wait to apply for licensure until formally securing employment with a new independent lender face different but equally problematic obstacles. Foremost among them is the notion that someone whose livelihood relies on interaction with customers and whose income is derived primarily from commission will be sidelined from any type of customer engagement for weeks--or months, in some cases--as they wait for their application to process.
Not only does this mean that MLOs must sacrifice most or all of their income for that period, but it also means they are crippled from pursuing new leads that will boost their business down the road.
On average, it takes MLOs between two and three months to complete the entire licensing process. Once starting with the new employer, the MLO must complete 20 hours of pre-licensure education. In practice, completing these courses usually takes a week or two, and it takes an additional week or so before the education component is marked as "clear" on the NMLS website.
The MLO must also obtain and submit fingerprints, which also can take several days to process. Next, he or she must register for and pass the state NMLS licensing exam. Often, these tests must be booked several days in advance and may require the MLO to travel across the state to the testing center.
The exam itself, with a 61 percent pass rate, is no cakewalk even for experienced MLOs. If the MLO fails the exam, he or she must wait an additional month before retaking the test. After several failures, the MLO is locked out for a six-month period.
Once the MLO passes the exam and his or her employer provides for the surety bond, the MLO submits a completed application and awaits approval from the state regulator. In most states, the best-case scenario is a two- to three-week turn time between the moment the application is submitted and the date when the state has approved or declined the application. This turn time varies greatly based on time of year (timetables are almost universally slower when the application is submitted in close proximity to the state regulator's annual renewal deadline).
Some state regulators take significantly longer than this typical two- to three-week time frame. New York's average approval time for new MLO license applications is currently around six months. The prospect of sitting on the sidelines without pay for these many months makes waiting to join a non-bank before pursuing licensure an equally problematic option.
In April 2015, Rep. Steve Stivers (R-Ohio) introduced H.R. 2121, the SAFE Transitional Licensing Act, which addresses this important issue. The bill bridges the gap so that experienced MLOs moving from a bank to a non-bank can continue originating loans while in the process of completing the state's NMLS education and licensing requirements.
The period of transitional authority begins as soon as the MLO submits a completed background check (e.g., fingerprinting, credit history check, criminal search) and runs until the state issues the license, denies it or issues an intent to deny. If the MLO fails to submit a complete application, the temporary authority automatically expires after 120 days. If the MLO has completed all aspects of the application, including education and the exam, and is simply waiting on the state regulator to make its decision, the transitional authority period will continue beyond 120 days. This provision is designed to in-cent both the MLO and the regulator to complete the application process in a timely fashion.
The Mortgage Bankers Association (MBA) worked closely with state regulators and the NMLS to ensure that operational and consumer-protection concerns were fully addressed. "The bill was drafted not only with active engagement from our members, but also in close consultation with the Conference of State Bank Supervisors [CSBS]," says David Stevens, CMB, MBA's president and chief executive officer. MBA and the CSBS worked together to include key safeguards, such as:
* Limiting transitional origination authority only to experienced MLOs with at least 12 months of continuous employment as a registered MLO with a depository institution. Under the SAFE Act and related provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, these MLOs are treated by the Consumer Financial Protection Bureau (CFPB) and the federal banking agencies as qualified originators.
* Precluding MLOs from obtaining transitional authority if they have had an MLO license application denied, revoked or suspended in any governmental jurisdiction; if they have ever been subject to or served with a cease and desist order; or if they have been convicted of a felony.
* Moving the background check and fingerprint submission to the front end of the application process, allowing regulators to review and decline a license application immediately if there are adverse findings that would preclude licensure.
* Requiring lenders employing MLOs under temporary authority to take full responsibility for their actions as if they were fully licensed.
* Ensuring that MLOs cannot "renew" their transitional authority if they still have not completed their license application after 120 days.
The bill has been met with strong bipartisan support on Capitol Hill. Rep. Terri Sewell (D-Alabama), an original cosponsor of H.R. 2121, hails the legislation as "an opportunity to reduce the burden on working professionals moving between jobs without undermining the important consumer protections that the SAFE Act put in place."
On March 2, the bill was unanimously approved out of the House Financial Services Committee with a 56-0 vote, and it is awaiting a vote by the full House.
Some states, such as Virginia, have already adopted their own legislation to prepare their regulators for the system change. "We'll be ready on day one," says Nathan Burch, president of McLean Mortgage Corporation, Fairfax, Virginia.
"Virginia has already determined that a transitional authority is something the industry needs. Now they're just awaiting the federal go-ahead," he adds.
By bridging the gap for an MLO between bank and nonbank employment, H.R. 2121 would eliminate the existing barriers that prevent talented MLOs from joining an employer that might offer them the best chance to succeed in the industry.
Returning to a non-bank after time away
As loan officers come in the door, it's not uncommon to encounter a case where the MLO has previously completed NMLS licensure but the license has since expired. Often, the lapse was out of the MLO's control.
Maybe the MLO began his or her career at an independent, left for a bank that would not sponsor the license renewal, and is now returning. In other cases, it is a parent or loved one who left the company for an extended period to take care of a child or look after a sick family member.
There is an inherent inequity in requiring these individuals to repeat the pre-licensure education and testing process. In response to these and other industry concerns, in August 2012, NMLS expanded the definition of the "Approved-Inactive" license, which gives MLOs the option to obtain or renew their licenses in an inactive status when they are not currently employed by a state-licensed firm. Yet, this option is still only available in about half of the states, as only 36 of the 59 state mortgage industry regulators honor any type of Approved-Inactive status.
While it is important to note that this issue also would be solved by enactment of H.R. 2121, the best interim approach is for the remaining state regulators to grant an Approved-Inactive license. The unresolved question is whether any more regulators are inclined to do so.
"Since announcing this expansion of the Approved-Inactive definition three and a half years ago, very few state regulators have joined the original adopters," says William Kooper, MBA's vice president of state government affairs and industry relations.
"It's surprising to us because we've always believed that, for multiple reasons, it is in the state's interest," he says.
For example, Approved-Inactive licensing status provides MLOs at banks a great opportunity to stay current on their own training requirements by learning the laws of the states in which they originate. Indeed, the CFPB has acknowledged that completing the eight hours per year of NMLS-approved continuing education content is sufficient to satisfy the training requirement for bank MLOs in the Loan Originator Compensation rule.
Recent graduates entering the industry
The rigorous NMLS exam ensures that all new MLOs have a solid grounding in the laws, regulations and market fundamentals. However, it doesn't guarantee that a new licensee will be successful as an MLO. In fact, in my experience, the system practically encourages new MLOs to try it and quit.
These new MLOs often receive no formal sales training, they are often compensated on a pure-commission basis before they are sufficiently established in their markets and they see no immediate opportunity for advancement or any type of relevant performance metric other than their total production volume.
The long-term effect of this, once again, is that lenders will fail to retain the level of origination talent that the next generation of first-time homebuyers will require. Companies must reassess whether their training and onboarding strategy is truly about teaching, preparing and engaging their new recruits or whether it is merely a formality to comply with the SAFE Act's minimum licensing requirements.
Zach Cook, a loan originator at Grand Rapids, Michigan-based Treadstone Funding who completed NMLS licensure with a large national lender in 2014, admits that the industry moves new MLOs out to the front lines quickly.
"Beginning a career as a loan originator is very sink-or-swim. Twenty hours of NMLS education gives you the tools you need but it is insufficient exposure to know if the fit is right," Cook says.
He says the key to success is finding an employer with a robust training and mentorship program that teaches the intangibles.
Some employers have dedicated resources to an in-house corporate training department, while others have turned to external education content providers such as MBA. Either of these methods work, but they are absolutely necessary as a supplement to the mandates of the SAFE Act.
Once new MLOs make it through the licensing process, how can companies maximize the chance that they will be successful and remain with the company? Some organizations have adopted a mentorship model that pairs a senior loan originator with one who recently obtained licensure. The senior loan originator oversees the work of the junior, provides periodic feedback and gradually gives the new MLO more complicated assignments.
Many lenders that concentrate on retail business utilize a hybrid commission/salary model for newly licensed MLOs until a predetermined period when they have established themselves in a particular market. In a recent presentation, Steve Richman, national spokesman for Richmond, Virginia-based Genworth Mortgage Insurance, suggested a "tour of duty" model, where the employer and MLO agree that after a certain term of employment, perhaps three or four years, the employer will review the MLO for advancement or, if the job doesn't seem like the right fit, consider moving him or her to a different department.
The common thread in all of these ideas is that the employer is creating accountability, setting near-term performance metrics and getting its new originators to buy into the company identity.
Since the adoption of the SAFE Act, hundreds of thousands of loan originators across the country have already completed the licensing and training process. In each coming year, tens of thousands more will begin the process.
Making sure we get the process right--that new originators are properly prepared for the road ahead, that licenses are not extinguished without valid cause, that skilled individuals have full flexibility to move to an employer that might offer them the best chance to succeed--will ensure that the industry retains the level of sales talent that the next generation of borrowers will require.
H.R. 2121 FACTS
The SAFE Transitional Licensing Act (H.R. 2121) does the following:
* Creates a transitional origination authority for experienced mortgage loan officers (MLOs) moving to a non-bank.
* Provides consumer protections developed in consultation with state regulators and the Conference of State Bank Supervisors (CSBS).
* Safeguards against abuse and screens out bad actors.
* Encourages timely completion of license application for both MLOs and regulators.
* Enables regulators to review license applicant's background check earlier in the process.
* Holds transitional MLOs and their employers to the same level of accountability as licensed MLOs.
Matt Jones is regulatory assistant for the Mortgage Bankers Association (MBA) in Washington, D.C. He can be reached at email@example.com.
|Printer friendly Cite/link Email Feedback|
|Comment:||A better system of loan officer licensing and training.(LICENSING)|
|Date:||Jun 1, 2016|
|Previous Article:||LOS--through the lender's looking-glass.|
|Next Article:||2016 is 1998.|