Are Mortgage Loan Originators Professionals?
When I ask the question “Are loan originators professionals?” to a group of loan originator students in ethics classes, almost everyone says “yes.” Anyone can do their job in a professional manner (adjective,) but not everyone is a Professional (noun.) Is your barista at Starbucks or the person who bags your groceries a professional? If you answer “yes,” what makes a barista different than a lawyer? When we use the word Professional as a noun, there’s a classic definition that we refer to here:
A Professional:
- Has specialized knowledge in his or her field. (Update: This body of knowledge is generally agreed-upon by those in the industry and is typically described within state and federal law.) This person knows way more than the average random consumer about his or her area of expertise;
- Is required to complete a minimum amount of formal, academic education;
- Is tested for competency;
- Is licensed;
- Must maintain that license with mandatory continuing education;
- Subscribes to a mandatory code of ethics in an industry that is self-regulating. This is different from state or federal government regulatory oversight. The industry itself regulates ethical conduct over and above state and federal law;
- The self-regulating body enforces their code of ethics with sanctions for violations;
- Owes fiduciary duties to clients. This means the professional has the highest prescribed duty of loyalty to the client, to put the client’s interests above his or her own interests.
Here is how loan originators (LOs) measure up against the above list:
- LOs, there is a power imbalance between you and the consumer. You know way more about how the machine we call mortgage lending works than the average random consumer will ever know.
- In many states, including WA, no education is required to begin originating loans. (However, this may be changing at the federal level.)
- Testing LOs for competency finally began in 2007 for LOs in WA state
- Licensing of LOs is currently not required in all states and for originators employed by all types of lending institutions.
- Continuing education requirements are very low if they exist at all (WA state only requires LOs to take two classes per year.)
- There is no mandatory code of ethics for mortgage lenders. What codes exist at the national trade level, are voluntary and offer insufficient guidance.
- Currently there is no ethical oversight in mortgage lending by the industry. There may be individual company codes of ethics for employees. Were you asked to read and sign a company code of ethics before or during the hiring process?
- Fiduciary duties are now required for mortgage brokers and loan originators as of June 12, 2008.
One of the ways we can better understand the current crisis facing the mortgage industry is that loan officers, loan originators, mortgage planners, loan consultants, or whatever their job title, had absolutely no duty to put their client’s interests above their own. The relationship between a loan originator and the consumer was (and still is in many states) a retail relationship. During the mortgage-lenders-gone-wild days, many consumers (based on countless interviews held by regulators, consumer advocacy groups and even the mainstream media) held a false belief that a loan originator is a “professional” and owes a duty to the consumer not to harm him or her.
Loan originators are classified as an “emerging profession.” We are living through a historic, transformational phase. On the other side of the transformation, which could come sooner than some people think, I believe LOs, no matter where they work, will owe fiduciary duties to consumers, even with LOs who work at a bank. If you look at the narrative history of any profession you would see, over time, a steady increase in the number of continuing education classes required, more mandatory pre-licensing education, an elevation of duties owed to clients, more expansive ethical codes, and tougher licensing exams. Loan originators, no matter where they work, will eventually transform into professionals, though some will have to be dragged kicking and screaming.
Many brokers believe fiduciary duties means higher liability. However, if done right, this may actually have the reverse effect by lowering the mortgage broker’s liability.
I received confirmation from Mortgage Law Central this morning that unearned referral fees (for doing no work; just refering the ...
It's no wonder HUD audited A+, their fees were outrageous! I can't even imagine charging a borrower a discount, origination ...
Jillayne,
While I agree with a lot of what you have said here, do you really think that the consumer is ...
as far as I know we dont have a formal code of ethics at this moment, but it is an ...
I believe that the lenders, regulators, and Loan Originators are to blame for the mortgage industry crisis. Greed drove ...
Pingback by Solutions to the Mortgage Lending Crisis : National Association of Mortgage Fiduciaries on 13 June 2008:
[…] post education, tougher exams, and higher duties owed to consumers, but moving into the realm of professional status also means more prestige, less government oversight, and the fees emerging mortgage professionals […]
Comment by Brad Allen on 14 June 2008:
Great definition of a profession. I don’t know that there is one that is universally accepted but you have captured many of the usual key points contained in other definitions I am familiar with. Your definition is missing two key elements, however. A profession has a well established body of knowledge that members of the profession are exepected to have mastery of. There is no such established body of knowledge for the mortgage broker industry. And professions generally have a measure of public purpose. The mortgage broker industry has yet to define and accept for itself any public purpose.
As for your analysis of how the mortgage broker industry stacks up, I would disagree with your acceptance of the current licensing exam as a test of competency. Insurance agent exams, mortgage broker exams, stock broker exams are focused primarily on making sure that the practitioner has an acceptable understanding of his industry and of the regulations governing it. They all fall short of any measure of competency, that is, the examination and evaluation of the practitioner’s mastery of that defined body of knowledge that is central to the profession. It is not sufficient to say that mortgage brokers know more than average citizens regarding mortgage origination and lending. The real question is do they know what they ought to know relative to the accepted body of knowledge to be deemed worthy of entry into the profession. You cannot even begin to examine for mastery of the subject matter until you define the subject matter to be mastered.
I think you are on the right track. I am not sure that the industry has any real interest in becoming a profession, however. Until industry leaders recognize the importance of and the need for fiduciary responsibility, they will not provide leadership leading to the acceptance of fiduciary responsibility. As long as we are just in the business of selling loans, the closest thing to a profession we belong to is the sales profession. And that one fails to meet yours or anyones elses difinition of a true profession.
Brad
Comment by mf on 18 June 2008:
Hi Brad,
You know what? I agree with you and I’m going to update the main article to include “a specialized body of knowledge.” That’s on my main list and I accidentally left it off.
“A profession has a well established body of knowledge that members of the profession are exepected to have mastery of. There is no such established body of knowledge for the mortgage broker industry. And professions generally have a measure of public purpose. The mortgage broker industry has yet to define and accept for itself any public purpose.”
The industry does have an agreed-upon, established body of knowledge. That knowledge is made up of state and federal laws governing the mortgage lending industry. A list is located here:
http://mortgagefiduciaries.com/mortgage-broker-or-loan-originator-exam-preparation/links-to-state-and-federal-laws/
The “public purpose” of mortgage brokers can be found inside each state’s Mortgage Broker Practices Act, located in the pre-amble. Here is WA State’s MBPA:
http://apps.leg.wa.gov/RCW/default.aspx?cite=19.146.005
Comment by Brad Allen on 18 June 2008:
The fact that the government views the activities of mortgage brokers as having a potential to negatively impact the public gives rise to the need to regulate those activities. However, this is very different from a profession that has a self awareness of and general acknowledgment of a calling to provide a benefit to the public. When the government regulates an industry for the purpose of protecting the public, they provide minimum acceptable standards of practice. When a profession is self actualized by its own sense of the value it brings to the public, it aspires to the highest practice standards. The difference is substantial. The state can, and has, declared mortgage brokers to be fiduciaries. But until mortgage brokers view themselves as fiduciaries - a valuable benefit to the public - they will not self regulate their practice standards from an aspirational standpoint. This is one of the significant distinctions between an industry or trade and a profession.
Brad
Comment by SL on 20 June 2008:
I was looking at signing up for the ethics class you offer and all the good feedback. But when I checked with DFI, they said this company is not on the approved CE Provider list and they will not honor it. Can you please explain? I don’t want to take it twice and lose any money. Thanks.
Comment by mf on 20 June 2008:
Hi SL,
NAMF is a newly approved professional association. We are WA DFI approved. Perhaps their staff did not have a copy of the updated list of approved entities.
Comment by SL on 20 June 2008:
I don’t know. She said she was looking at the updated list from June 13, 2008. She was very stern. She said if it wasn’t on the list, they wouldn’t honor it. Maybe she just wanted to get her weekend started.
Comment by mf on 20 June 2008:
Let’s seeee….the NAMF approval letter is dated June 9th. I sent an email to Crystal at DFI asking her to make sure their staff has the updated “approved providers” list.
Thank YOU for the heads up!
Comment by Susan on 21 June 2008:
Hi Jillayne, As a paid member of the Ethical Lending Foundation I haven’t heard from you in a while other than your witty blogs on Active Rain. Just what did my membership buy besides a couple of great trainingt courses last year? I note your ELF schedule of courses is blank on that site. Is the NAMF venture a new replacement and if so am I a charter member?
Thanks for clarifying your ficudiary responsibility to me!
Comment by Jillayne Schlicke on 23 June 2008:
Hi Susan,
I blog on raincityguide.com and rarely, if ever, on ActiveRain. Maybe that’s what you meant?
Yes, NAMF is a replacement.
I am offering all ELF members a free charter membership in NAMF. Would you like to take a look at the NAMF Code of Ethics?
Comment by Susan on 24 June 2008:
So many blogs so little time! Nice of you to offer NAMF membership for Ethical Lending members…did I miss that email?
I’ll take a look at your new code of Ethics.
Thanks, Susan
Comment by Roger Ingalls on 25 June 2008:
Jillayne:
I didn’t see this post at RCG either. A good topic, and worthy of wider debate. New strategy?
Susan’s comment that a formal notice of the name change from ELF to NAMF has some validity. I presume at least some of the members of ELF take the organization and it’s goals seriously (like I do), even if it may have been only the classes and CE that brought us there originally. I have been looking forward to an opportunity to meet some of the members FTF, as it seems difficult to find like-minded loan originators in this business.
I’d like to throw in a vote to be able to work on the existing Code of Ethics as well. I don’t think such a document has as much meaning unless it is subject to periodic review and revision, subject to a prescribed and public set of rules for it’s revision. Kinda like the Constitution.
That’s just one guy’s opinion…I could be wrong
Comment by Roger Ingalls on 25 June 2008:
Oh, and I thought the price of the classes and membership was entirely reasonable. It’s weird that the laws that I (in parts) supported ended up eliminating the requirement that I take CE, but irony is like that some days.
I look forward to taking my 2 VOLUNTARY CE classes this year, as it is included in the price of memebership!
Comment by Roger Ingalls on 22 July 2008:
I could not find a copy of the new code of ethics. As a charter member of ELF, I’d like to have a chance to offer some input into it.
I just read Brad Allen’s comments, I agree with the body of knowledge and purpose issues, but the body of knowledge issue will be VERY tough to quantify and measure.
It certainly could be added as a stretch goal!
Also, is there a method to signing up for a class via the web site, or is just emailing better?
I want to hear about short-refi’s and see there is a class in Everett. Any planned in Bellevue area?
Comment by Jillayne Schlicke on 22 July 2008:
Hi Roger,
Our new code has not yet been posted yet. I will email you a preliminary draft in PDF format. I would love your input!
Brad has some very, very good input into fiduciary duties.
Best method for signing up for a class is to click on “schedule” on the menu bar at the top of the site.
The closest I will come to Bellevue for a Short Refi class soon is Renton at Firstam Lender’s Advantage on Aug 21st.
Comment by Susan on 4 August 2008:
Jillyane, Considering the new Housing Bill is only 700 pages(!) …how’s your interpretation going? Susan
Comment by Jillayne Schlicke on 5 August 2008:
Hi Susan,
The “foreclosure rescue” portion of the bill will not help as many people as the politicians would have us believe.
The fannie/freddie bailout is not nearly enough money and is simply getting us prepared for an eventual complete nationalization of fannie and freddie.
Downpayment assistance programs should die and never return. I am not pleased that the house has introduced legislation to bring them back to life. FHA is not the government’s subprime nor should it ever be. We should fight hard to keep it solvent.
National loan originator licensing is now coming as it is part of the foreclosure/fannie/freddie rescue bill. This is fantastic.
The buyer tax credit is a joke. I can’t imagine who would fall for it but I’m sure some people will get talked into using it.
The bill’s new nickname is HoHo: Hope for Homeowners.