Bank versus non-bank originator licensing (March 31 is approaching); warning note on giving valuations to borrowers

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. Read more...

 

 

A couple Saturdays ago the commentary raised the issue of licensing. I had received the note below:

 

 

 

I am still wondering what the thought process is with the CFPB’s lack of enforcement requiring Loan Officers with bank owned mortgage companies becoming licensed.  As a regional manager, I have interviewed LO candidates who failed their test or background checks for licensing and then they walk down the street to a bank owned lender and go to work.  So how does working for a bank lender make an LO a better qualified LO?  But the more important question I have for the leaders of bank owned mortgage companies; if your bank is committed to providing the best trained loan officers in the mortgage business why doesn’t your bank require your LOs to pass the licensing test, and the same background requirements that each state requires to become licensed?  Why does a government agency have to mandate or make it a regulation for a bank lender to require LO testing if they truly want to provide their customers with the most ethical, knowledgeable and best trained loan offers? All Realtors have to be licensed and all appraisers have to be licensed, so what is the thinking with excluding loan officers with depository lenders? The issues that brought about Dodd Frank and the CFPB were not restricted to just non-depository lenders; the bank lenders were right in the middle of it too.  I think we all want a level playing field and the goal should be to provide the most ethical and knowledgeable loan officer so our consumers are protected! The CFPB is supposed to be all about protecting the consumer; not protecting the banks.”

 

 

 

[Editor’s note: banks, and bank employees, have their own set of rules, background checks, testing, and so on. And they will often argue that their standards are higher than a mortgage banks. But you do bring up a great point, and Dave Stevens, in a speech two days ago, mentioned that reconciling business-specific LO discrepancies is on the MBA’s agenda for 2014. So stay tuned!]

 

 

 

I received a plethora of comments on both sides of this issue. Originators know that the opportunity to take Stand-Alone UST ends on March 31. The Stand-Alone UST is an adaptation of the NMLS National Test that is now accepted by 39 different state agencies. Taking the UST is highly recommended for any current licensee who might ever be licensed in another state: http://mortgage.nationwidelicensingsystem.org/profreq/testing/Pages/UniformStateTest.aspx.

 

 

 

Now that the dust has settled…

 

 

 

“I keep seeing mortgage bankers and brokers crying ‘not fair’ about the big bank LOs not having to be licensed. If fairness is the issue, isn’t it a good thing that they don’t have to be licensed? Isn’t that one of the biggest pitches against using a big bank – that the LOs are ‘lesser’ LOs because they aren’t licensed for one reason or another? It seems to me that helping improve the qualifications of your competitor is a bit counterproductive. Of course, if the idea is to improve the mortgage industry as whole, then I get it.”

 

 

 

Kevin Igoe with the Community Home Lenders Association writes, “This has been a major issue for the Community Home Lenders Association and we have worked aggressively to level the playing field. Our members are committed to bringing about fairness in the manner in which non-banks are treated in all aspects of the regulatory process.”

 

 

 

And this from Oklahoma: “Having spent my entire career at depository institutions until this past year, I have changed my opinion on LO licensing completely. I co-owned a mortgage company with a community bank for over 12 years and thought my MLO operation was well trained as well as personally having the mindset that non-depository lenders ‘should’ be required to have SAFE act education. My thought process being that most banks have systems in place to control the training and risk. After having joined a large mortgage banking firm and having taken the required licensing test, I now realize the numerous benefits of the testing. My entire team followed me to our new endeavor; all having to take the test. I can state that all of them were extremely nervous about passing the test realizing their careers could be in jeopardy should they fail. I can say that all of them studied hard, past all their tests and are better MLOs as a result of the experience. I am a huge supporter of the effort to level the playing field as all MLOs should be treated the same. I can also speak with some authority that not all bank MLOs understand the responsibility their positions require nor do their superiors. The testing actually transforms the MLOs into superior employees as they fully understand severity of doing their jobs incorrectly.”

 

 

 

And this note from Robert Eustis, CMB: “The Bureau is charged by Dodd Frank with ‘ensuring that bank loan officers have training commensurate with their duties’. We know of no objective standard other than the Multi State Test, UST, that could show that the Bureau has accomplished its mission as set out by the law. The CFPB should promulgate a regulation requiring bank loan officers to take and pass the UST. That would be an easy way to achieve two goals: #1 that the Bureau has fully complied with the law, and #2 that non-bank lenders would play on a level playing field.”

 

 

 

“The write-up stating it is not a fair market to have bank LOs not having to take a test is somewhat annoying. From the beginning LOs at banks have been tested and audited by and on RESPA, ECOA, TILA, etc. etc. and they are audited by FDIC (and insured by which no broker is), OCC, and every other regulatory agency. A broker shop is only audited by the state Office of Financial Institutions which often only audits minimal things and has very limited power. I personally had a broker shop that had a LO that committed fraud by created VODs and VOEs with my company, Chase, and National City and the next year my local OFI gave the LO a license to open her own business. When we called to find out how this could be we were told that OFI does not have the right to deny a license for this reason. Bank LOs are held to a much higher standard and audited 10x’s more than any broker shop. If we all want to play on an equal playing field then I think we should also all be audited by every regulatory agency.  I can guarantee you most brokers in the market would not pass 1/3 of those audits. I get so frustrated when I focus on learning every regulation and train my LOs how to stay compliant and a broker owned mortgage company walks in and sells to my clients they do not have to do any of it. Until the CFPB was created there was no one really auditing much out there on the broker side. I’ve been on both sides, it’s not the same and honestly I doubt it ever will be unless broker shops want to be audited on every aspect of their business like a bank is.”

 

 

 

“I certainly agree with your question of the CFPB’s lack of enforcement on LOs with a bank. I tried 8 months ago switching to contracting my business through a national bank from a state licensed mortgage company. I passed a credit check and a background check but, nothing to compare with renewing my state licenses for Kansas and Missouri respectively through NMLS. I only stayed with them for two months because of other issues within the organization, which by the way took government bailout funds. I went back to my state mortgage company. I have to question the validity of an organization that cannot even police its own lending policies being qualified to employee LOs that they hire with such lax standards. Certainly double standards apply. I was a conventional banker for 29 years before entering the mortgage business so, I know how they work. Most are certainly handled by responsible leaders.”

 

 

 

“The CFPB had told the industry it was not interested in re-opening the SAFE Act. Why, is simple. HUD was given the SAFE Act initially and HUD is exempt from the RFA. I was on a state broker board and wanted LOs licensed, and at the time I was also a registered rep with NASD. I fashioned it off of that platform. I was fearful of a bifurcated system like they had in Florida at the time. Ruth Faynor was the lead at getting the Florida system proposed but the big banks opposed it. It the end they came up with the dual system. And we saw the results. I know a copy of my paper went to a member of AArmR. Not claiming it was my idea. But in the original paper I wrote it was for a single platform anything less is disparate treatment. HUD said it wouldn’t have an impact on small businesses because it was just on the LO. We all know that’s a joke – even worse when you fill out the Call Reports. The CFPB’s rules, on their face, consistently favor larger institutions at the expense of smaller companies. I do not know where SBA Advocacy has been. In 2007 they issued a study that said regulations cost small businesses $10,575 per employee. I cannot even fathom what that number is today when you account for Dodd Frank and Obamacare.”

 

 

 

Joe A. observes, “Regarding licensing, I am now at a community bank. But in prior years I ran my own company as a lender and broker so I feel I know both sides of the issue. Even though I am not required I keep my license in place but recognize the intense requirements of the banks for training their loan officers. However, it does not put the pressure on to the extent that brokers or non-bank lenders feel when they have to take the test. But let’s be real for one minute. The true difference here is that the banks are involved in a constant month to month training curriculum. Most brokers and lenders wait to the last minute, take an online course (which is the same thing over and over, and applies to all players no matter how many years they have been in the business), and they move on until the next required test a year later. Both approaches accomplish pretty much the same except for the NMLS and State tests that ‘require’ you to take the test. You don’t pass a test at the bank level and there’s really no penalty. You don’t pass it at the NMLS or state level and you’re cooked.”

 

 

 

Finally, Dave Stevens with the MBA contributes, “As a matter of fact, it’s the MBA that voted, and is advocating, to amend the SAFE Act and require LO testing and licensing for all loan originators regardless of business model. It’s really important that lenders read our advocacy plans & comment letters before making statements that are simply incorrect. No organization has been as firm on equality for all lenders than the MBA. At the state level we often encounter groups that couldn’t vote to support testing for all LOs because the boards were divided with big banks on their board. The difference was that we had a unanimous vote in favor of this because I called personally the CEOs of each big bank telling them what obligation they had as citizens of the mortgage system to promote equity and fairness. Again, our vote was unanimous and we had Wells, BofA, and the other large institutions, along with IMBs and community banks, all support it with no one opposed. This takes work and lenders have an obligation to know what is being worked on and not just assume with zero fact checking. A fractured industry because of people like this will absolutely lose the policy war.”

 

 

 

Switching gears, changing tacks, “and now for something completely different, Mike Ousley, president of Direct Valuations, warns lenders, “In the rush to comply with the CFPB Ability to Repay (ATR) and Qualified Mortgage (QM) rules on January 10th, many may have overlooked the CFPB rules in conjunction with Equal Credit Opportunity Act (ECOA) Regulation B Valuation Rule, effective January 18, 2014.  The CFPB has published this handy guide for consumers to use to protect themselves – http://files.consumerfinance.gov/f/201309_cfpb_ecoa-appraisals-rule_what-it-means-for-consumers.pdf. So, along with the appraisal report, ANY commonly used reports, such as AVMs or even potentially the Submission Summary Report (SSR) provided by Freddie Mac through the Uniform Collateral Data Portal (UCDP) which includes its Home Value Estimator (HVE) Automated Valuation (http://www.freddiemac.com/singlefamily/guide/bulletins/pdf/bll1320.pdf) is required to be supplied to the borrower promptly, or three days prior to loan closing, whichever is earlier.  My questions is how are lenders prepared to deliver these valuations to the borrower (Lenders using the Direct Valuation Solutions fulfillment platform succeed seamlessly through its automated, secure delivery mechanism) and for the potential questions from consumers, not just on the appraisal, but also any other valuations used in conjunction with making (or declining) a loan?” Thanks Mike!

 

 

 

 

 

Anyone with a dog, or a cat, or, better, both, or who likes to make fun of them, needs to spend a minute or two watching this: http://biggeekdad.com/2013/12/dog-shall-pass/.

 

 

 

 

 

If you’re interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog is, “A Primer on TIPS”. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.

Rob

(Check out http://www.lendernews.com/ for posting jobs and resumes, and http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx for news. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2014 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)