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 doctor or lawyer? When we use the word Professional as a noun, there’s a classic definition that we refer to here:
- Has specialized knowledge in his or her field. This body of knowledge is generally agreed-upon by those in the industry and is typically described within state and federal law. A professional 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:
There is a power imbalance between mortgage loan originators and the consumer. LOs know way more about how the machine we call mortgage lending works than the average random consumer will ever know.
The SAFE Mortgage Licensing Act of 2008 requires 20 hours of pre-licensing education for licensed loan originators. The Dodd Frank Act of 2010 requires equivalent education for depository bank registered LOs.
The SAFE Act requires licensed LOs pass a competency test.
The Dodd Frank Act requires registered LOs pass an equivalent competency test.
Licensed LOs now complete 8 hours of continuing education and any state required CE
Registered LOs complete the equivalent of the above.
Code of Ethics
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.
Some fiduciary duties exist between loan originators and their clients. For example, Washington State prescribes fiduciary duties for mortgage brokers and the loan originators who work under the supervision of a mortgage broker. Other states may have also added this duty. But no such duty exists in all 50 states at the federal level.
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 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.
Many in the industry believe fiduciary duties means higher liability to the company. However, if done right, this may actually have the reverse effect by lowering the mortgage company’s liability.
Looking after the best interests of customers is almost always in the best interest of the company.
Once the mortgage industry decides to adopt a prescriptive and descriptive code of ethics AND ALSO a framework for industry self-regulation, an added benefit will be that government regulators and politicians will stop passing more laws directed at our industry.
Do you need consulting on ethics in mortgage lending? Contact Jillayne Schlicke for help in drafting an ethical code, research, writing, training, corporate events, and convention speaking.