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 have worked as a “professional” in the past. As a LO I do not have professional status in the business sector of America. I may work, act, and be compensated financially as a professional but I am not there by definition. We will not attain professionl status until our industry raised the bar on educational requirements. Also a self-governing body with the ability to sanction members of our industry for violating our precise and easily understandable code of etics must be in place before we can claim professional status. I would love to see this happen. I would be happy to donate a certain amount of my time to make this happen, but until we are all willing to give action not lip service to professionalizing our work place we shall enjoy the status of a non-professional.
I was not asked to sign a code of ethics, however, I was required to sign an agreement to not solicit or sell insurance or investment products to Reverse Mortgage clients (directly or indirectly.) This had been a source of substantial revenue to my broker.
There is a “power imbalance” in many cosumer areas.
Don’t most of us learn the business from the company we initially work for. This was true for me in the insurance and securities business. Luckily I picked first class organizations.
Lastly, the words “professionalism and professional” implies compentence and care in dealing with the public. A medical doctor is a professional putting the patient uppermost in the service. A LO is someone that can incorportate professionalism in the way they go about their work, they are not professionals.
They should be professionals if they are in that business however i have went to different ones that were not so professional but what i think is a professional someone else might not.
There definately is a big difference between professional and not. I dont believe that knowledge makes you smart…you still have to conduct yourself professionally and be honest about what you know or don’t know.
I believe that this industry is making possitive steps towards regulating LO’s by offering or requiring continued education. It sure helps with our role as a professional to be able to acknowledge and understand possible questions consumers may have. One thing I’ve noticed for myself is that I’m learning alot about fraud and what really goes on out there.
All mortgage professionals should be:
Licensed
Tested
Must attend education and CE
Must attend some level of skill training (additional certification)
I agree with you was the adverse effect of all of this is that now the mortgage loan originators liability.
A realtor selling a $2,000,000 property has had to be licensed going back how long? But as a loan officer giving him a $2,000,000 mortgage is not required to be.
I never could understand that one. The loan officer has far more access to view the borrowers financial situation. In most cases this is the largest financial transaction the average consumer has made to this point and should be serviced by a professional.
I agree in the definitions for a professional, I also believe that there are many Loan Originators who live up to the definition.
Although, the licensing structure and continuing education is becoming more inconvenient for the people who do their job correctly. LO’s that have done the right thing are now being punished were more extensive education (which certainly isn’t free) , testing etc. I also think the state should offer free continuing education if they are going to keep increasing it. The NMLS is also a huge money maker, for everyone being so greedy and bringing the market to where it is, it’s funny how they created another system that costs the professional more money.
Hi Ross,
Yes there were and are plenty of loan originators who lived up to the classic definition of a professional.
They sought out education even though it was not required, they put their client’s interests ahead of their own, the abided by an internal code of ethics, and so forth.
But just because one person says “I am a professional” does not make it so. Subjectivism means any LO could say “I am a professional” and their idea of a professional could be completely different.
It’s when an entire group of people come together and set down guidelines as to what it means to be a loan originator that include ALL the hallmarks of a professional.
Yes continuing education is expensive.
If you look at the history of any profession, you can expect more and more required pre and post education, tougher tests and more rigorous licensing standards.
Being a professional is expensive and requires an investment by that person.
Compare the costs of becoming an LO to the costs of becoming a doctor, lawyer, engineer, CPA.
Like every industry there are bad apples in every bunch. I’ve seen LO’s walk consumers to the edge then soak them with a smile on their face and a pat on the back. On the other side I’ve seen brokers take a genuine interest in their customer/client lay out a selection of options that were more than competitive. Only to see the borrower go across the street because the lender had their name on a stadium and promoted rock concerts. Sure the borrower over paid some 8k at a minimum. But they felt more comfortable with a name they knew.
Go figure.