National Licensing of Mortgage Brokers - Is it a Hoop, Funnel or Noose?

I think everyone should have certifications, licensing etc.  Jump through hoops, slide down funnels and hung by a noose in the end if they mess up...how's that?  Where's the COE for everyone in the world?  Good and bad in all industries....

Art,

Very thoughtful take. I'm going to quote you on my blog - I hope you don't mind.

Everything sounds good on paper. The major players in Congress advocating licensing have their hat in the ring for the Presidency. It's a political issue at this point. It would have been worse if the subprime fall out had happened in 2008! Wow can you imagine.

As far as "mom - dad" - good thing I joined the mortgage industry after getting married. My in-laws are missionaries  and at the time of our wedding they had no way of knowing I was going to be a money grubbing, selfish, filth to society.

Thanks,
Shailesh

Celeste "Sally" Cheeseman (RA), e-PRO; Oahu, Hawaii!

Good point Sally - hang the bad guys.  Thanks.

Shailesh Ghimire

I don't mind if you quote me- only your readers might.  You'd have NEVER gotten permission to be married if they knew your darker side - too late!  Thanks.

I believe that mortgage professionals should be licensed, but, the licensing should be handled and controlled on the state level.  Almost anything that the feds touch, they screw up.  Just like illegal immigration.  That is their responsibility and they can't even handle that.

Art,

In response to your article.  Here in Tennessee, mortgage brokers are licensed by the state.  I belive this was done to end the cycle of job hopping and also to hold brokers more accountable against loan fraud and the likes.  I have been licensed in the mortgage industry and recently gave it up and now hold my P&C licenses with the state of Tennessee.  And let me tell, it was a real challenge to get this license.  20 hours of pre-licensing course work for each license (40 hours total), a state monitored test, and at least 12 hours of continuing education a year.  Here in this state, all it takes to get a brokers license is to work for a company that has a main license and $100 for indivdual license's. Thats it, no tests, no education, nothing, notta. 

 I do think that brokers need to be licensed but, i do agree that it needs to be monitored by the state and also there needs to be some education required as well as a test.  Any yay-hoo can walk into an office start work not have the first idea as to what is happening. 

I love national licensing...but it should be for everyone...INCLUDING BANKS.  And it should allow originators to originate in every state if it's a national license.

Since most states already require brokers to be licensed and bonded as well as licenses for individual loan originators what is the point of a federal license?

What gets under my hat is that brokers do not approve or fund loans.  They follow the guidelines set forth by the lenders.  If a LO commits fraud to get someone in a loan they can not afford it is already illegal, that why they call it FRAUD.

Most Mortgage Brokers already have to pass a state exam and maintain a license in order to concust business.  Here in Florida, many that try to take the exam fail the first time and quite a few never make it.

That being said, a national standard may not be a bad idea, but I think you hit the nail on the head when you mentioned banks are exempt. 

Unles banks and everyone, regardless of how, that is originating mortgages is required to manintain the license, there will always be issues of risk.  Banks get away with hiring high school grads and teach them how to fill out a 1003 and then they can originate loans, no further requirement (for the most part). 

Failure to make those that are "exempt" become non-exempt will only worsen the profession as a whole and cause mortgages to be more expensive with crappier service, IMO.

Another point to ponder.  The subrime foreclosure apocalypse, or whatever the new buzz word is in the media, has some familiar wording when it is referenced.  Like "pending" and "may.'  "

"The pending subprime disaster...may send foreclosure rates to record highs."

Lets see, where did I hear those words before...oh yhea.

"The pending Y2K disaster...may result in world wide blackouts."

Coincidence?

I agree with the brokers being licesend in each state... I don't agree how brokers are blame for everything.. Dennis is right- as brokers we follow lenders guides and we don't even approve the loans. So how does everything fall on brokers?

I love thought-provoking posts, Art. Personally, I feel that anyone who claims to be a professional should have to be "certified" or licenses in some manner to put into place some sort of standard of education and service to the client. I realize that licensing doesn't always accomplish this (the RE is a good example here), but it's at least a starting point of accountability. However, it should not be abused just so others get rich off of the process. Thanks for a great post!

Dennis Serra

Dennis - Brokers are the new "untouchable" caste banned (officially, anyway) in India.  Pariahs.  Only Brokers and Multilevel Marketers have to couch their titles in obscure phraseology (Mortgage Planners, Loan Officers, Loan Originators, Real Estate Finance Faciltators vs "I have my own business!" and "I have an online store."  Ever hear a physician say, 'I'm a physiology facilitator" or "Menderologist"?! 

So much damage has already been done!

Robert D. Ashby, CMPS, CITRMS

Robert - You cited that "other" Golden Rule - "He who has the gold..."  The local banks here were having a field day (I know of two specifically) plugging people into 3-yr ARMs at inflated rates - a bait and switch when their trusting depositors/clients thought they were getting 30-yr fixed  products.  We saved the borrowers and got 'em 30yr fixed (real ones this time) at rates 1/4 to 1/2 less.  I'll bet less than 1% avoided the burn.  And still the ads continued unabated...

Roger Stensland

Roger - you may be on to something!  Give it to the Feds and it might NEVER happen.  They've yet to fix the TIL.

Timothy Lane

Yay-hoo!  Thanks Tim - that is the BEST phonetic spelling I've seen (there's a word for that??)!  There should be some controls and criteria, yes.  Training and education, too.  Problem is it is farmed out and becomes this massive, expensive money-making industry all by itself.  Why can't a state regulate and present the CE and licensing courses in house?  Don't tell me state workers - regardless of state - are too overworked - I'm related to way too many of them in other states...  Good point - excellent.

Larry Bettag Vice President

Larry - Including banks!  At any level, without restriction.  Yes.  They can increase the overdraft fees a dozen more dollars to pay for it.  What a racket!  Thanks.

J.R. Quarles

J.R. - I don't know how it falls on brokers either.  These loans are underwritten per lender guidelines.  One problem with the UW system was explained to me in this fashion...don't quote me: 

"The loans were bundled (for investors) too liberally.  The option neg-am family was packaged for sale with risk indicators that were too low, as were the rates.  An investor knows if he's dealing with subprime, there will be defaults - but that extra 2 or 3 percent in return offsets the defaults.  That's where the scams were - investors bought into risky product without knowing what was REALLY there."

Here's a bit of trivia.  According to "generally accepted accounting practices" the neg am payments are carried on the books as if they are fully amortized payments.  That means if you have an option payment of $800 and the amortized payment is $1500, the $1500 is recorded as the value of the payment - a credit - in the books.  How many BILLIONS are on the books that don't exist and will NEVER be recovered because of default!?!  This Big League error is gonna make Emron look like T-ball practice in comparison - at least to this uneducated guesser.

Thank you all for commenting and feed our minds.  Really good job.

Ryan Hukill

Ryan.  I sailed in the merchant marine for years.  Mostly cargo ships.  Big. (6, 7, 8, 900 feet long)  Deep sea.  I was licensed as an engineer and a mate - eventually sailed and licensed as Captain.  To move up in license (got out of a four year school as a 3rd mate, for example) required recorded and verifiable time at sea AND an extensive exam - 3 to 4 days of 6-hour testing per day.  By the time I became a Ship's Captain (Master) you can figure I was pretty prepared - at least per experience and on paper.  One would guess that on the bridge of a ship in crowded waters I would be fairly capable.

The testing was run by the US Coast Guard.  The sea time was documented the same way.  Prices were reasonable and the system was fair, testing was standardized (in the late '60s - before my time) and all was equal.  HOWEVER, if you wanted to take a licensing course or prep classes for testing - it got really expensive.  The private sector needs to make money.  I bought the books and self-taught.

So my Master's license (any oceans, any tonnage) was earned.  I worked hard and sacrificed much - as did my family - to achieve and sail on it.  But one day recently I heard the story of a former USCG officer who was going to go to sea on a Masters License he didn't earn - he was gonna get it written up and sail passenger ships.  He had NOT paid his dues, but could pull favors to get his desk time interpreted as sea time.  I was incensed!  How dare he cheapen what I sacrificed years away from home and family to accomplish.  I figuratively puked all over the messenger - he'd thought I'd gone nuts (I had!)  What an injustice to cheapen and trivialize another man's life with the stroke of a pen.

Now to my point.  I don't really care if the bar is raised on licensing requirements for mortgage brokers.  But I'd be livid if the bar was raised for only some, that others were exempted or could pull strings to circumvent a system designed to promote excellence and professionalism.  That's what I'm afraid will happen to national mortgage broker certification. 

It has the potential to become one huge expensive joke.

It's like a man getting an honorary doctorate degree and calling himself "Dr. X" the rest of his days.  It's phony and diminishes those who earned theirs.

OK - I fell better now.  Thanks for YOUR thought-provoking post.

Art

Occupational licensing serves only the State as a revenue source and the industry as a barrier to entry.  Based on those facts, I'm all for anything that can eliminate my competition (as unjust as it may be).

Each state's law are different so to make a blanket license won't work.  However, I am all for everyone being licensed.  To many bad eggs go to work for Direct lender or Correspondent Lender and in Florida they don't have to be licensed they can just be a loan officer.  In my time running a CL I have interviewed way to many "Loan Officers" and when I asked them why they did not what to get a license almost every time was they did not want the liability.... hhmmm if you where doing nothing wrong why worry?

I think the sad fact of the mortgage mess is that no one is holding the buyers accountable.  Yes there are some crooked loan officers. but if you read the documentation, you can figure it out.

Sadly, they will probably pass something and execute it miserably - Want proof?read the trruth in lending document. 

The licensing will push more loan officers into mortgage banks (licensed as companies with individual loan officers).  Also they are tryingto cap incomes per file which might have more of an impact.

9didn't get credit in the system for the last one.

Thanks for the post.

I'm a LO, and I do think there needs to be some kind of certification or an ethics test that needs to be taken.  I know some Brokers that really give us Lenders a bad reputation.  Like Brian said, go for it and it will eliminate the bad seeds.

I've dealt with supposed loan officers..........they need to get the licensing just like Realtors do. That will - perhaps - weed out the ones who don't know a thing about lending. They need to be accountable as do the actual lenders.

Wow!  Did I say Wow? This is a great post!  I can't agree with you more that it's not the brokers who are at fault with the sub prime mess.  It's the fault of the entire industry, but more the fault of the banks and big mortgage lenders and wall street who created these programs.

The banks are ready to pounce!  I'm all far a National standard as long as it is intended for all mortgage lenders, not just brokers.  I think that the educational and experience requirements and a substantial test at least on par with the Series 6 and 7 tests that stock brokers take should be implemented For ALL LOAN OFFICERS!

Bob Mitchell

ValueList 

One other thing, I live and work in Missouri and a few years back we had a big mortgage broker named Lender's Mortgage go belly up.  Within a couple of weeks of that failure a law was written and past to regulate mortgage brokers.  The funny thing is that it did absolutely nothing to address the issues that caused Lender's Mortgage to go belly up.  All it did and all it was designed to do was to raise the cost of production for the mortgage brokers so that the banks could compete.

Bob Mitchell

ValueList 

Geesh this was an awesome article!  Thanks for spending the time to do all the research and also type it up :-P

Wow....lookie all the LO's here!  Hey Art...I got some jamming and dancing going on!

This was a wonderful post. Different opinions thats great. I belive in having brokers and banks to fall under the same rules.

Thank you for the well-considered comments and opinions expressed so effectively (Bob Mitchell and Dennis Serra doubled their efforts). 

From what I read, most of us are not afraid of the national certification possibility, but of the probabilities of administration favoritism and incompetence that tend to result from a centralized system.  Whether it's state or national, we want a level field. 

Fairness and Effeciency.  That isn't too much to ask, is it?  But the delivery is another story...

Let's keep our eyes open.

National Licensing is something I think is an idle threat.  There is no reason we should be forcing the federal government to get more involved in the loan process than the 20 pages of disclosures we're forced to provide!

I think that the unregulated nature of loan officers and bankers is part of the problem, not the cure.

Banks fly a flag that gets them trust and Brokers get bashed with the flag pole!

I've heard more horrible things from Bank employees and things they do than I've ever heard from a Mortgage Broker - and I've met some bad mortgage brokers.

I think licensing and renewing licenses should be tougher... I think all loan originators need training and guidance.

I think that the National forces need to be cognizant of the efforts of the good Mortgage Brokers and the NAMB to keep our part of the industry under control.

What a great post. At first, I thought you were going to have every mortgage broker, lender, etc...breathing down your neck. I don't know if certification would be bad or good. You definitely got my attention.

David A. Podgursky, MBA The Mortgage Go To Guy!

Christy Powers

I have to agree with your statement, David, about the "horrible things."  It doesn't take too long to get enough experience to know when a loan can or can't be done - especially by a Bank.  However I have lost large loans to a local bank on more than one occasion where I am so totally familiar with the borrowers' situations there was no possible way the loan could be done the way it was, .  Someone high up - VP in these instances - pushed through the loans with totally fabricated information - but who's going to blow the whistle and who will audit?  And HOW?

When I sold homes in Florida, I sat in a room where the Branch Manager - who also happened to be the underwriter with this Top 5 lender - told the co-Borrower (who had her own primary residence) she was occupying the house with her daughter (NOO co-B wouldn't work) and pushed the loan thru.  A former colleague of mine previously worked for Ameriquest  (Google THEM some time with the words "predatory" of "fraud" or the like) - he said their approved files often were unrecognizeable from the original application (no wonder they settled for NINE HIGH FIGURES out of court!).

My point - even with the strict regulations we have, it's impossible to monitor the sheer volume of files in any reasonable way.  And once a file is created and evidence to the contrary destroyed, the lies become factual.  Power corrupts.  So does money.  No finite number of certifying agencies can stand against greed and dishonesty.

Personally, I want to be counted amongst a group of people that are professional and licensed - and some day respected.  I don't like over-regulation and heavy government, but if that's what it takes, do it.  Set the bar high!  High for EVERYONE!  It's sometimes embarrassing to be lumped with "professionals" whose only qualifications were $250 and a pulse.  Financial investors have pretty rigid testing and many handle far less money than a mortgage.  As is often my broken-record credo, "We can do better."