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:

1. 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;
2. Is required to complete a minimum amount of formal, academic education;
3. Is tested for competency;
4. Is licensed;
5. Must maintain that license with mandatory continuing education;
6. 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;
7. The self-regulating body enforces their code of ethics with sanctions for violations;
8. 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:

1. 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.
2. In many states, including WA, no education is required to begin originating loans. (However, this may be changing at the federal level.)
3. Testing LOs for competency finally began in 2007 for LOs in WA state
4. Licensing of LOs is currently not required in all states and for originators employed by all types of lending institutions.
5. Continuing education requirements are very low if they exist at all (WA state only requires LOs to take two classes per year.)
6. There is no mandatory code of ethics for mortgage lenders. What codes exist at the national trade level, are voluntary and offer insufficient guidance.
7. 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?
8. 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.