The “Federal Housing Finance and Regulatory Reform Act of 2008? is here. Read the PDF if you’re feeling ambitious or here is the summary of the Dodd amendment. There’s a section inside Senator Dodd’s amendment that will give us national loan originator licensing. On page 34, the definition of a loan originator is as follows:
LOAN ORIGINATOR
A) IN GENERAL
The term ‘‘loan originator’’
(i) means an individual who
(I) takes a residential mortgage loan application; and
(II) offers or negotiates terms of a residential mortgage loan for compensation or gain;
(ii) does not include any individual
who is not otherwise described in clause (i) and who performs purely administrative or clerical tasks on behalf of a person who is described in any such clause; and (iii) does not include a person or entity that only performs real estate brokerage activities and is licensed or registered in accordance with applicable State law, unless the person or entity is compensated by a lender, a mortgage broker, or other loan originator or by any agent of such lender, mortgage broker, or other loan originator.(B) OTHER DEFINITIONS RELATING TO LOAN ORIGINATOR.
For purposes of this subsection, an individual ‘‘assists a consumer in obtaining or applying to obtain a residential mortgage loan’’ by, among other things, advising on loan terms (including rates, fees, other costs), preparing loan packages, or collecting information on behalf of the consumer with regard to a residential mortgage loan.
This broad definition of “loan originator” means that we’ll be licensing LOs no matter where they work: broker, banker, consumer finance company, or credit union. There will be 20 hours of required, pre-licensing education and a national test delivered by the National Mortgage Licensing System and Registry. 75% to pass.
There’s way more to this bill than Nat’l LO licensing. 387 pages more. But that’s a good start. Here’s the MBAA recap:
WASHINGTON, DC – Senator Chris Dodd (D-CT) and Senator Richard Shelby (R-AL), Chairman and Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs, today announced that the Committee passed “The Federal Housing Finance Regulatory Reform Act of 2008,” legislation which includes major efforts to help prevent the rising number of foreclosures, to create more affordable housing for Americans, and to reform the regulation of the government-sponsored enterprises (GSEs) in order to improve their role in the housing finance system. The legislation passed by a vote of 19-2.
The Mortgage Banker’s Assoc has lots more to say to policymakers in regards to how ginormously specialer they are than mortgage brokers. Bankers don’t want to be lumped in together with brokers, especially with any law that will require fiduciary duties. According to Housingwire, MBAA says that “any legislation of a fiduciary relationship tied to borrowers should extend only to brokers and not to bankers, because brokers are an intermediary working with bankers on borrowers’ behalf; it also suggests that fee-level disclosures and limits on some forms of broker compensation, including yield spread premiums, need not apply to bankers’ own origination activities, because bankers are subject to greater supervision and regulation than brokers.”
Wait, didn’t a fair number of lenders on the implode-o-meter hold a banking charter?
Interestingly MBAA rolled over and gave in to loan originator licensing for LOs who work at a bank. See the bullet points at the end of this press release.
Along with national LO licensing, the act brings the “Hope Now” program which has been voluntary, into law, gives President Bush the government-sponsored entity reform he’s been looking for, and extends a hand to the affordable housing coalitions.
Jillayne:
Do you know if the CA DRE salesperson and/or broker’s license will be sufficient for the national LO requirements?
Hi Brian,
We’ll have to see what they come up with in the rules. Perhaps some people will be grandfathered in and won’t have to take the competency test. If there’s been a recent background check and a set of fingerprints already on file, that they would use them.
But doesn’t this mean data sharing between a huge number of state agencies?
Maybe the NMLS will put the burden back onto the LO to do the legwork in obtaining the grandfathered approval paperwork.
What do you think?
Requiring Lo’s to be licensed was good for consumers as I believe there were some unkowledgeable LO’s prior to this requirement. I disagree witht he Mortgage Banking Association’s stance that fee level disclosures and limits need not apply to bankers. The same disclosure requirements should apply so consumers can compare and shop for the best deal. I often find myself reviewing loan where bank rates in my opinion were too high based on the consumers credit rating and DTI.
Affordable housing coalitions are good in some cases and not in others. I think there are too many guidelines and restrictions to make them effective programs.
I agree with Rita. Bankers should also be required to fully disclose their fees. Often, consumers think that the bank is giving them the better deal with a “no cost” loan, not able to compare apples to apples.
I agree that licensing is beneficial to the consumer for a number of reasons. We are, in theory, supposed to be knowledgeable and guide the client through the process, the coursees and testing are ways to encourage us to become sufficient at that.
I absolutely disagree with the idea that the banks should be somehow exempt from fee disclosure and limits. This is isleading to the consumer who is trying to compare and often makes it looks as if we are trying to pull something shady.
I agree as well. Why is it that bankers feel they have should not have the same regulations? They say they are under more supervision, but is that true? I am curious, has anyone here worked in a bank – and how does it differ? What a broad definition of a loan originatior. I found it interesting that a person who prepares loan packages is by definition a loan originator. So is this saying that anyone who handles prepping loan files must be licensed?
Hi Jenn,
Bankers do not have the same regulations as brokers because they are two different types of entities.
Banks, especially banks regulated by the FDIC have much stronger guidelines when it comes to hiring practices as well as education and training. The standards at banks are way, way higher than working as a loan originator.
In WA State, for example, there is ZERO pre-licensing education required. The LO must simply pass a competency test. LOs will only take continuing ed that’s mandatory. At a bank, education is mandatory and ongoing. I worked at a mortgage bank.
I have been a proponent of LO licensing for many years. Prior to relocating to WA I was licensed in CA. To work as a LO in CA you were required to obtain and maintain a RE salesperson or broker license. CE requirements were 45 hours for renewal every 4 years with specific required courses defined by the CA DRE. I was shocked to see that there were no requirements to operate as a LO in this state. No competency exam, no background check, no pre- licensing or CE requirements. I applaud WA for finally getting it together and the National licensing requirement just takes it to the next level. Hopefully this will allow a Broker to access the system to review past experience, complaints, or disciplinary problems for any prospective hire. If you really want to dedicate yourself to becoming a professional then you shouldn’t have any problem with the reqirements to attain that status. Basically it’s a test of your knowledge, a background check, some pre-licensing education and continuing education to maintain proficiency. Most LO’s I know are well compensated so I don’t foresee the costs and fees becoming an issue
Licensing in the Mortgage industry is absolutely necessary and most welcome in my opinion. I believe continuing education should be mandatory in order to maintain ones license. Realtors have had to do this for years. Our industry is open for fraud as we have seen. Background checks are completed in almost any hiring process. The resposibility we have to our client is tremendous compared to many other fields of employment. I also do not feel bankers should be exempt from licensing requirements. Anyone that took the Mortgage Fraud classes saw large banks guilty of fraud, or simply conducting
themselves unethicaly.
Although banks may have more stringent supervision (which is debatable in my opinion) and mandatory continuing education, I still believe bank LOs should be subjected to the same rules as brokers. All too often I have to explain and dissect a bank’s advertisement of no cost loans and also explain whether or not it is in their best interest to go with me or with the bank.
More preparation and training will reinforce to all in the industry to deliver better results to our customers.
I consider that is unfair for Broker and LO’s to be overlooked than banks. In despite that a Bank maybe more regulated than a Broker, that does not covers the performance of an individual LO representing the Bank. At the end, there is an LO seatting at the bank’s office and therefore the Bank’s LO’s should also be regulated at the same level as an LO representing a Broker.
Without a doubt, a loan officer employed by a bank is loan officer and should be held to the same standards as everyone else. If they have even more training and regulation as required by their particular bank…then good for them. Their fees and policies should be explained and outlined just as clearly as ours are required to be.
I HOPE IT WORKS, BUT AREN’T WE BAILING OUT “BANKS” ?? I LIKE SHELBY, MOST OF THE TIME, BUT CHRIS “COUNTRYWIDE” DODD??? THAT IS REALLY PUTTING THE COYOTE IN CHARGE OF CHICKENS. BARNEY FRANK???? AND WE WONDER HOW WE GOT HERE???? THESE OUTLAWS COULDN’T RUN A LATTE STAND IF YOU GAVE THEM FREE COFFEE GROUNDS AND MILK. I AM ALL FOR CONTINUING EDUCATION. HOW ABOUT A REQUIREMENT FOR THE IDIOTS THAT WOULDN’T LET BUSH CLEAN THIS MESS UP 6 YEARS AGO. METHINKS FREDDI AND FANNIE DONATE TOO MUCH!!
Without a question- continuing education should be mandatory in order to maintain ones license.
Having a mortgage licesne is necessary, It has eliminated the crud that was out there originating loans. I agree that banks appear to have lower closing costs that I thought I could compete with. I asked did you get a GFE? they said of course the bank has NO Fees, well after reviewing the 1 point originations and the 1000 lock in fee is indeed fees. rate is higher as well. We have to educate the consumer. I understand banks have different regulations, Bottom line is we are both originating a mortgage for the consumer.
The licensing of LO’s, is one of the best things that has happened in our industry to date. It tells our customers that those of us who are still doing loans are legitimate and have passed all state requirements. Why should a bank LO be held to any less?
I have found that many banks do not hold their LO’s to a higher standard, nor do they train them properly. I imagine that it depends on the manager as well, but when the manager is producing and competing with the LO, their is not as much accountability or tracking. I also have found that the lack of requiring a license at banks allows them to be much less professional than brokers and bankers. Without question, they should be held to the same standard.
Being a licensed LO is a great privilege and shows to our clients that we are holding accountability for our actions. This couldn’t have been done any better.
I agree. It’s been the best thing to have LO’s licensed. It does show that they are being overseen by some states regulations and not just the individual company. I belive that the banks, credit unions, etc. should also be regulated by these state regulations.
I agree that LO’s should be licensed. This will bring order to the confusion and loop holes that are out there. With LO’s being licensed, there will be a set of rules to be followed and leaves no room for question.
I am happy the State instituted the License requirement and testing. I started as a processor and was shocked to find many of the LO’s were unaware of rules and regulations. Every little bit a knowledge will help the industry….
Having been licensed for many years in the insurance and securities business. I’m not troubled that I need to be licensed to originate mortgage loans. Neither am I troubled that there is testing and background checks. This will probably elevate the quality of people in the business assuming we need elavating.