I’ve had a chance to meet many loan originators during the past 5 months while teaching the required 20 Hour SAFE Comprehensive Pre-licensing and Exam Prep Course.

Currently, loan originators in WA State who have not been previously licensed are going through the licensing and testing phase which includes the required 20 Hour Course, mandated by the Federal SAFE Act (Secure and Fair Enforcement) Act of 2008.

I have some feedback for folks who are looking at the pass rates of the new national exam (currently 67%)  and wondering who is passing and who is not passing the exam. But first some background.

Prior to 2010, loan originators working under a mortgage broker in some states had to become licensed and pass state exams by scoring at least 70%.  State exam included state law, federal law, mortgage-related mathematical computations and a few questions on ethics.  At the end of 2007 WA State had roughly 14,000 licensed LOs.  In 2008 there was a WA state law change in which the definition of the word “lender” at the state level was brought into line with the federal definition which is basically, “the entity with the money to fund the loan.” Licensed mortgage brokers with a correspondent line of credit with one or more banks were told they had to switch their state license to a consumer loan license (CL) instead of a mortgage broker license. Since, at that time, consumer loan companies were not required to license their loan originators, many LOs who worked under a broker that had to switch their license to a CL license let their loan originator license lapse.  Why pay money for continuing education and to maintain a license that’s not required? A few months later in the summer of 2008, the SAFE Act passed and it would only be a matter of time before the regulators got busy licensing CL loan originators.  Well, two years later here we are. Today WA State has roughly 4,000 licensed loan originators who work under a mortgage broker.

By July 1, 2010, all Washington state loan originators who work under a consumer loan license (correspondent lenders, mortgage bankers, non-depository lenders) must have taken 20 hours of prelicensing education, pass the national and applicable state exams, a background check and submit fingerprints through the Nationwide Mortgage Licensing System. The feds are taking over the bulk of loan originator licensing and education.

For the past 5 months, I have had the pleasure of meeting many loan originators who work under a consumer loan license.  I am happy to share with you that the quality of LOs in 2010 is radically different from the LOs I met in 2007.  Yes readers, there are many differences between mortgage broker LOs and consumer loan company LOs.  But those differences will have to wait for another blog post. Today I’d like to share with you who’s passing the LO exam and who is not passing, and who will need to take the exam more than once and quite possibly more than two times.

Loan originators who have been in the business for at least 11 years

…with no work stoppage time (excluding ordinary parental or other temporary medical leave), entered the industry back in the 1990s, back in the time when the world still believed that federal and state lending laws existed to be followed and we all had managers who cared about the default rates of the loans originated out of their branch. These LOs have seen their share of FHA and VA loans along with sane underwriting guidelines when we actually declined loans.  These folks will and are passing the loan originator exam unless they spent the majority of the 2000s at a brokerage (see below.) Their biggest challenge is to learn the difference between their own company’s policies and procedures and what the law says to do.  Mortgage lending firms can have tougher guidelines than what state or federal law allow but they can’t go weaker than the law.  These LOs just simply need to tease apart the two, and learn THE LAW because the national exam won’t have test questions on any one company’s policies and procedures. 

Loan originators who entered the industry during the bubble run up and predatory lending heydays of the 2000s. 

Loan originators who worked for a mortgage broker during the bubble run up received little, if any  compliance training and very little training on agency product (Agency = the Fs; Fannie, Freddie, FHA).  These loan originators will definitely will need to allocate way more study time than a 20 hour course.  These LOs can and will pass the exam because they have one thing going for them:  Motivation in the form of if they don’t pass, they won’t be able to originate.  Fear and anxiety are powerful motivators and LOs can use this as fuel to prompt them to study. This means actually opening a course book and reading it, taking practice quizzes to test for retention, and repeating for each federal law.  Beyond the required 20 hour SAFE course, I recommend setting aside an additional 20 hours of study time with no distractions. If LOs are distracted while studying, double that to 40 hours. Go off the grid while studying. Trust me.

Loan originators who are brand new to the industry

Loan originators who have never originated but know something about the industry because they’ve worked in another parallel industry will pass the exam. For example, real estate agents know the lingo but know less than they think they do about federal and state law, everyday activities of loan origination, and lending products.  30 additional hours of study time minimum, beyond the 20 hour class.

Loan originators who are brand new with no prior experience in the industry will likely fail the exam the first time with some minor exceptions.  Let’s tackle the exceptions first.  LO candidates with a Bachelors or Masters degree in finance, economics, philosophy, soc/psych, or accounting will do fine on the exam because they understand how to study for exams dealing with complex questions.  In fact, they might feel like the exam was too easy, but they’re going to study anyways because they’re academically mature enough to have learned that studying actually works.  This exception does not apply to anyone with an MBA.   Folks who have taken other difficult licensing exams will also understand how to study in order to pass. These include people who hold a securities license or an insurance license. 

That’s all the exceptions.

Now let’s talk about why brand new LOs will likely fail the first time.  20 hours is not nearly enough classroom time needed to teach all new LO candidates everything they need to learn in order to pass the exam.  I know what you’re thinking, “Jillayne and those educators, they just want more classroom time required so they can make more money.”  Yeah, I know it sounds self-serving. But honestly, it is extremely grueling work bringing someone from zero knowledge of mortgage lending to a point where they can go forth and prosper.  Loan originators reading this, think about how long it took you to really get your sea legs.  I’m not talking about how long it took you to close your first sucker on the phone spoon-fed to you via a radio commercial during a refi boom.  I’m talking about how many days, weeks, months until you felt like you knew enough to be dangerous.  Maybe a couple of weeks?  Maybe you’re humble enough to say you’ll never be finished learning about mortgage lending because guidelines never stay static.  20 hours might be the minimum required but a brand new LO is going to be in training mode for a while.  Ask any loan processor. They’re the ones who end up training new LOs.

Currently the 20 hour pre-licensing courses are filled with experienced LOs from the consumer loan companies.  A baby LO with no experience is left with having to decode TILA, RESPA, ECOA, FCRA, SAFE, and re-insert the meaning of these laws into case study context very quickly because there is so much to cover during that 20 hour class. It’s extremely difficult to teach a course filled with a mix of experienced LOs  and new LOs. Both need to learn the same concepts but the baby LO is at a disadvantage.  Not all course providers are skilled at identifying when students need something different from their educator.

The SAFE Act will eventually be changed to require more hours of pre-licensing education but for now 20 hours is fine because we need to bring the current crop of unlicensed consumer loan company (also known as non-depository mortgage banker) LOs into the system. But those 20 hours fly by leaving baby LOs in the dust. New LO candidates might need to retake their 20 hour course again, and those who have report that the second time around, they retained way more course content.

Loan originators who have not taken a test since high school

If the loan originator falls into the category of a person who has been originating loans pre-2000, these loan originators are going to do fine as long as they study and brush up on their federal laws.  Their mantra ought be “anxiety is my friend.” LOs: Embrace the anxiety and block off downtime to study beyond the 20 hour class. 

Loan originators who fell out of the industry during the hell that was 2008 and are now back

Loan originators who ONLY originated subprime, entered during the boom, never met a Realtor they liked because “Realtors are so demanding” who live only for the refi and are now trying to get juiced to pass the new exam will likely fail the first time.  The test is much more difficult than you imagine and tougher than previous state LO exams. LOs reading this, if you fall into this category, follow my recommendations for “brand new LOs” above.

Loan originators who use to be wholesale reps

Chances are quite high that former wholesale reps with very little experience originating will fail the exam the first time.  LOs reading this, if you fall into this category, follow my recommendation for “brand new LOs” above.

English-learning loan originators

English learning loan originators will pass the exam. It might take them more than once or twice but they will definitely pass.  These students are highly motivated and usually quite extroverted.  They ask for what they need and get it.  For example, sometimes my ESL students ask for the reading material 2 to 3 weeks ahead of time and…bonus! They actually read the material and come prepared with a list of highly detailed questions.  I love having ESL LOs as students because in my experience, they learn English very fast and now we have more bi-lingual LOs who are an asset for the industry as well as the consumer.  ESL loan originators allocate way more study time before their exam and do it without complaining.  ESL loan originators actually read the state and federal laws.  This is why they will pass the exam. 

Loan originators who do not hold a high school diploma or GED

You might be thinking, “Jillayne, are you nuts? Who could do the job of a loan originator without having at least a high school diploma?” Surprisingly, a high school diploma is not currently required at the federal level to receive a loan originator license.  That will change someday.  But for today, yes readers, this is not a requirement for holding a license to assist Americans finance what will probably be the biggest credit decision of a consumer’s life.  As we wait patiently for this law to change, educators are busy helping these students pass their LO exam. 

Let’s jump in the Hot Tub Time Machine and visit the 1970s or 80s. Kids with learning disabilities or emotional problems at home that manifested their way into the classroom may have been passed from grade to grade or even put in a special ed class with hell knows what kind of instruction. Today in the glorious 2010s we have para-educators all over public schools assigned to kids with special needs (at least until the next round of budget cuts hit.) But back then, people who weren’t book-smart or chose to drop out of school for other reasons could easily get a job in many industries and work their way up.  This includes the mortgage lending industry.

There are many different learning styles; auditory, visual, kinesthetic, the whole body learner, the emotional learner, and so forth.  Way back then, our teachers stood up in the front of the class and lectured and we were supposed to just “know” the material from that lecture.  People with a bad experience in school may have simply needed to try learning in a different way or perhaps they had an undiagnosed learning disability. 

I have now met 5 LOs who have only finished 8^th grade.  All are successful, accomplished LOs. There are enablers around them doing the reading and writing and math for them.  These LOs were able to pass any previously required state exam for two reasons: The passing grade was only 70% (it’s now 75%) and there were study guides available with upwards of 750 Q&As.  These LOs just simply memorized all the Q&As.  There is no magic book with all the possible Q&As this time around. 

These loan originators will be able to pass the new national loan originator exam but will need way more support than what’s available out there in the form of a 20 hour course.  This could include seeking out other tutoring from a test prep center that might be able to diagnose a learning disability.

LOs with verifiable learning disabilities can request more time to take the national exam.  See chapter 6 of the NMLS Test Candidate Handbook.

Past experience in the industry originating is not going to help because even though these LOs know how to originate and know the federal laws, they way test writers write test questions is confusing for them. They know the right answer if asked to explain verbally but a complex written question with four possible answers (!) invokes fear of failing and they end up taking an emotional journey back to school when they weren’t able to comprehend middle or secondary school complex test questions. The majority of course instructors are likely not qualified to deliver therapeutic emotional support.

Repetitive learning in a supportive environment will help build confidence for these LO students and re-taking the 20 hour course is highly recommended along with seeking out supplemental reading material and practice exams.  LOs reading this: If this describes you, you are capable of passing the exam. It might take you more than one, two, or even three tries.  Follow the recommendation for “New LOs” above.  And if this blog post inspires you to get that GED, locate a community college near you. They often have evening or online courses for working adults.

In 2008 I attended an Edmonds Community College graduation ceremony for my nephew, an aspie, who was receiving his A.A. At the same time, about 50 people of many ages were receiving their GED. I’ve never seen so much pride and happiness in one place than the looks on the faces of everyone receiving their GED.

Loan originators: The national LO exam will never be easier than it is right now. Over time the exam will get tougher.