A bill has been introduced in the House which would give existing Bank mortgage loan originators a temporary reprieve from licensing when moving from a bank to an Independent Mortgage Lender (LO Licensing).
If passed this would make it much easier for originators to jump from a Bank, where they need not be licensed, to work for a Lender, where a license is required before they could originate business. Is this good for the LO and the industry? Could be.
When the SAFE Act was passed, Bank originators were exempted from the license requirements. This was because Banks said these originators were already under tight scrutiny by various federal and state Bank regulators, unlike independent loan originators.
Subsequently, it became required that the Bank originators had to be registered in the NMLS, but they are not required to pass any tests or take continuing education to be authorized to originate mortgage loans. Independent Lender Originators have these requirements.
For years, the Independent Lenders have cried foul. They say the rule gives an unfair advantage to Banks in attracting originators because the Bank LO need not go through the rigors of obtaining State licensing. Some originators found it easier and quicker to go work for a Bank; no license required. Are the tables about to be turned?
With many Banks tightening lending standards, some Bank originators find themselves limited in financing offerings. These originators are looking for better job opportunities but without a lending license their options are limited to other Banks.
If they move to an Independent it might take up to 120 days after employment before they can originate a loan. Not a good option for somebody who gets paid on commission. The rule seeks to allow them to originate loans, and get paid, for a period of time after employment to allow them time to get the required license(s) they need. Not a bad alternative.
Since Banks fought to be exempt from the licensing requirements, it only seems fair that their loan originators should not have been adversely impacted by these same requirements. The caveat is the quality and experience of the originator involved.
It may not be so good for an individual with limited experience to be turned loose on an unsuspecting public just because they choose to jump from a Bank to an Independent. Nor is that in the best interest of a Lender to have an unqualified employee originating loans. The devil usually lies in the details.
If Congress and the Industry believe there is some benefit from originators being trained, tested and licensed, then an originator moving from a Bank to an Independent should at least meet some minimum standards before they can originate loans. This is in the best interest of everyone involved. Things like a clean background check with some set level of experience in originating mortgage loans could be required at a minimum. This could help to protect the consumers and lenders when a switch is made.
Maybe, it would be easier to remove the current exemptions for Bank mortgage originators from the SAFE Act. That way, all LOs would be treated equally, with the same required training and testing before they are turned loose on the public to originate business. What a novel idea, everyone being treated equally under the law. If Banks continue to fight for this exemption, they may find that the tables get turned if this legislation passes. Maybe they believe there will still be plenty of individuals willing to originate loans for the Banks because they need not comply with all the licensing requirements. Are these the type of originator they want to represent their Bank? We’ll find out.
Or, do the Banks become the training grounds for the Independents? A kind of Loan Originator Minor Leagues. Go to a Bank, get some experience and then jump to an Independent to get your license, while you still get paid. With your license, you can then move to any lender, Bank or Non-Bank, you wish. A free agent in the big leagues.
Will the new law put Banks at a disadvantage? Will LOs choose to jump from Banks strictly because of a temporary reprieve from the licensing requirements? Will Banks be left with those who could not meet or pass the licensing requirements? Or, will the best companies attract the best LOs because of product, price and service?
The big question is how do we stop the recycling of current LOs and start attracting new ones into the Big Leagues? Now, there’s something to think about.