Will the New National Loan Originator Exam be Too Easy?
Jillayne Schlicke on 06 24, 2009
I just took a look at the sample questions provided by the National Mortgage Licensing System for the new national loan originator exam and I must say these are so easy why even bother with a test? Let’s take a look:
If an applicant works 40 hours every week and is paid $13.52 per hour, what is the applicant’s
monthly income?
(A) $2,163.20
(B) $2,343.47
(C) $2,379.52
(D) $2,487.68
The requirement for private mortgage insurance is generally discounted when the loan-to-value ratio falls below:
(A) 20%
(B) 50%
(C) 80%
(D) 90%
Which of the following documents itemizes all settlement costs including lender charges?
(A) Agreement of sale
(B) HUD-1 form
(C) Form 1003
(D) Forbearance agreement
A discount point is BEST described as a charge the borrower pays to:
(A) a lender to decrease the interest rate on the mortgage loan
(B) a mortgage broker at the time of application to obtain a favorable rate
(C) the seller as part of the closing costs of a loan
(D) a lender to ensure against foreclosure
Which of the following methods of disclosure does NOT meet the requirements of the Equal Credit Opportunity Act (ECOA)?
(A) E-mail
(B) Mailed letter
(C) Telephone
(D) Faxed letter
What does a loan originator use to determine the estimated value of a property based on an analytical comparison of similar property sales?
(A) An appraisal
(B) A market survey
(C) An area survey
(D) A cost-benefit analysis
But perhaps I’m being to harsh. We have a vast number of unlicensed loan originators who are working for companies licensed under the Consumer Loan Act. We call these folks “consumer loan lenders,” or “non-depository lenders.” Rhonda Porter sometimes refers to these folks as “correspondent lenders.” They differ from a mortgage broker because by definition, a lender is an entity that has the ability to make the loan (fund the loan) and a broker is a middleman who does not make or fund loans, but FINDS the lender for a fee. Mortgage broker LOs are licensed in WA State but consumer loan company LOs are not. Yet.
Consumer loan company LOs can start to take their new national exam beginning July 31, 2009. Their real deadline is July 1, 2010 so it looks like I need to block off May and June 2010 for exam prep classes next year as predict the majority will put it off until the last possible days.
Anyone who has been originating for any length of time need not be afraid if the test questions are going to be this easy. Once the test launches I will go take it and let you know.
Perhaps for folks who are brand new to mortgage lending, these test questions might seem a little more challenging. That is the whole purpose of national testing and licensing: To create a minimum barrier to entry. The regulators at the federal level have put a lot of time and care into the education portion of the new law. Let’s hope that their chosen test vendor, Pearson Vue (who absorbed Promissor) doesn’t use the same old tired bank of test questions that’s been around for a decade.
Update: Prometric is also a test vendor for the new NMLS exam. Here’s a link to their website.
About the Author: Jillayne Schlicke
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47 Responses to “Will the New National Loan Originator Exam be Too Easy?”
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Jillayne, do mortgage originators who work for the big banks, like Wells Fargo, Chase and Bank of America (to name a few) even have to take this national test?
A,B,B,C,A,C
How’d I do?
lol, you’re joking, right?
Hi Rhonda,
No, bank loan officers do not have to take the national exam and they are exempt from the mandatory education and continuing ed….however, they DO have to register with the national mortgage licensing system.
Register…oh, like a sex offender? It really should have been across the board, you originate a mortgage, you’re licensed and have a license to lose. To be registered means nothing.
The requirements for mortgage brokers and correspondents/cla’s remains much stiffer than it does for a mortgage originator who is wokring for a bank.
DFI has stated that consumers are safer working with a mortgage originator who is regulated at the state level (licensed) than for a national bank…because if all else fails; your odds of recourse (even if it’s only the satisfaction of having a licensed revoked) are better than going after someone who works for a big bank.
Why? Hmmm… I don’t know… ask Congre$$.
I agree with regard to having every loan originator licensed, no matter the lending institution. We lost lots of lending institutions due to WAMU, Countrywide, etc. having unlicensed and uneducated loan officers that did not disclose properly. Which bank and lending institution is next?
Frank, you got one right. I think you need to stay after school alone with the teacher.
Wow it looks like the real estate exam for licensure. Or the ASVAB test for the military.
They need some critical thinking questions like I had on my RN licensure. That test made me walk away feeling like I learned nothing in 4 years and was not competent enough to give anyone an enema.
Oh thanks a lot, Ray. Now I get to try and fall asleep with an image of you not knowing how to give someone an enema.
I understand the real estate BROKER exam is harder.
I don’t remember the Brokers exam being difficult. I just remember I had to study the HUD settlement statement. We agents get lazy and send everything to Escrow. For the Brokers exam they throw all these charges at you and you must make sure you know who pays what… buyer or seller. I don’t think it was really hard though.
I’m serious though the NCLEX nursing exam was tough. The questions were developed by nurses across the the country and its fascinating and the test is always changing. When you miss 1 the test takes you on a different path and asks the question a different way 10-20 questions later. Its never an easy answer that is apparent. The test is impossible to study for and is all critical thinking. I remember I wanted it done immediately after nursing school so I signed up at Sylvan Learning Center as quick as I could.
I bought the Mosby’s 5000 test question guide. It was a huge book. I only opened it once at Safeway.
The exam was at 3pm. I went to Safeway on 105th and Aurora and sat down at the China Express to have lunch and study for a few hours. I ate my lunch then I was about to open the book to study but I stopped to eat my fortune cookie. I kid you not. I still have it. It says “you will pass a difficult exam that will bring you great wealth.”
I closed the book and went to Sylvan early (3 hours) and they let me in. The next 4 hours was hell for me but I passed. Some of my classmates finished in 90 minutes and they got C’s throughout nursing school and thought it was easy.
I don’t wish to ever take that test again and now I study for everything.
Ray,
Check back with me next year around June and I’ll let you know how many LOs put it off until the last minute and did no studying.
Hi Rhonda,
Well registration does mean a little something. Bank loan officers can now be tracked through the system the way mortgage broker LOs are tracked. A bank loan officer cannot just move to a different state and start over again if there have been problems with that LO.
We have to start somewhere and we started with the mortgage broker LOs. Next we’re tackling the consumer loan company LOs. In the future, it will be bank loan officers. It’s only a matter of time.
I would say the same about this exam “we have to start somewhere”. It’s not perfect…probably never will be. It will discourage some folks from continuing as a mortgage broker/correspondent lender…mortgage originators who want to avoid taking the national exam may opt to go work for a mortgage bank.
Hi Rhonda,
I’m not so sure LOs who are working for a consumer loan lender will want to go work for a bank.
Working for a bank is an entirely different corporate culture and mindset.
Oh I don’t know, Jillayne… some are talking about it.
Is this out of The Onion?
Hi Cam,
Thanks for the compliment. I have this secret desire to one day write satire for the real estate industry, however, with all the foreclosures going on, now is not the time.
Holy smokes.
All I can say, is that you better lobby for maybe toughening it to maybe 8th grade level.
Otherwise, who it their right mind would need your classes to prepare? Maybe those with an IQ below 60. Or the unconscious. Or the recently deceased.
Hi Cam,
Some LOs are still learning how to read and write English. (Before anyone starts thinking about making any wise remarks, these are some of the best students I’ve had. They HAVE TO study and they do well on the exam.)
Some are nervous test takers.
Some have an underlying deep-seated need for an independent third party to CONFIRM that they already know everything and WILL PASS.
Some wait to study until the week before their scheduled exam and then freak out and then I get them as a student.
Some make a choice not to study believing an exam prep class will just whip them into shape.
Some are brand new and know they must take an exam prep course.
and some, very few but enough to count, actually had been studying for weeks and the exam prep is for them to capture further exam test-taking tips and to test what they already have been studying.
Some think they know everything and put up a fight every time they get a wrong answer. These guys are afraid (underneath that agression) and need my help but can’t admit it.
I could go on…
I did not mean to imply your courses don’t teach them many things they need to know.
I would just prefer the true test come earlier than their first set of real mortgage docs.
It was remarkable how many mistakes I found on the mortgage docs for my first house.
Jillayne:
The first question is poorly constructed.
OK, let’s assume there is an exact correct answer. One could ask “which month are we calculating?”, since months have different numbers of days.
When calculating weekly income, we generally assume that there 4.3 weeks in a month.
40 x 4.3 x 13.52= $2325.44
Not one of the choices.
OK, what is the answer?
It turns out you have to multiply the weekly income ($540.88) by 4.33333, to arrive at the first suitable roundup number $2,343.46649 (B). That would be the first time I have ever heard of anyone using 4.33333 weeks in a month to arrive at a monthly income figure.
Also, most income calulations are done on a year to date method, dividing total income by the paid thru date on the pay stub.
The test needs more real time testing.
Still…the test questions you provided (if indeed representative) are a great improvement over the WA State test.
Rhonda, you are absolutely right. Everyone should take the same test, and everyone should face the same penalties.
We can not be viewed as professionals unless we all pass the same exams and have similar consequences for unethical behavior.
13.52 x 40 = 540.80
540.80 x 52 weeks per year = 28,121.60
28,121.60 divided by 12 months = 2343.47
The correct answer is B.
The number you came up with is closest to B.
Do you really think these questions are an improvement over the WA state test? Really?
OK, that’s another way to calculate income.
Sure.
The WA state test was seriously devoid of questions, definitions and scenarios we face daily, and mainly devoted to the regulations covering lending.
This is a step in the right direction.
Is it equivalent to passing the state bar exam? No.
Is it equivalent to passing the state nursing exam? No.
Chances are, it is not as difficult as passing the test to become a cosmetologist.
Eventually, the test will be tweaked by professionals in the industry, with the intent of limiting competition for labor, and driving up wages, (and increasing revenue for educators),if history is any precedent.
I’m reading a history of Lincoln. It’s amazing what little credentials were required to practice law in those days, and how much has changed.
I’ve got to send you some positive pills…you’re exposure to the lending industry is getting you seriously jaded…
It happens to me from time to time as well…
Sorry Roger, you get an F. I hope my employer is not using 4.3 to calculate my paycheck.
Who works 52 weeks a year? I agree with Roger. The first question is poorly constructed. Most “hourlies” work somewhere between 44-50 wks/yr, and not everybody gets paid vacation and holidays.
Sure, which is why the old(and now retruning) standard was to use a long term average. But for initial calculations some standard must be used, and so it is fairest to assume a somewhat typical 52 weeks of pay per year
I don’t agree this is a clear correct answer, without making assumptions not stated in the problem.
How many pay periods per year, 24 or 26 (2/mo or biweekly)?
What about people paid daily, a month can have 20,21,22,23 working days?
Dave, that’s why when someone is paid “hourly”, it’s factored over 52 weeks.
Underwriters (and hopefully the mortgage originators) will also look for variances in the hours someone works… I can see this could make a good post–Jillayne’s struck something (again).
Thanks for the comments. Casey, I don’t think my answer merits an an F.
After all, I not only got the answer right, but I showed my work. Maybe not an A+, but it would certainly get partial credit on a human grading system, and full credit in a computerized system. And, it is not my job to issue your paycheck.
The larger point is that loan originators only ESTIMATE income. It is the underwriters that actually determine the final incomes, and the means by which they derive those incomes can be unpredictable, as every loan originator soon discovers.
We learn that to spend an inordinate amounts of time figuring income down to the 5th decimal is a waste of time.
The better educators I have worked with actually enjoy having a student challnge the questions and answers, as it indicates they have engaged with the subject material beyond the requirements.
We need MORE LO’s involved in creating and challenging test questions, with the presumption that passing the test is a moderately good predictor of future success and quality work.
Otherwise, it IS just an artificial barrier to entry, and rightly disrespected by those that must suffer through it.
“It is the underwriters that actually determine the final incomes, and the means by which they derive those incomes can be unpredictable, as every loan originator soon discovers.”
Actually, it is entirely predictable. We are obliged to follow guidelines.
We don’t need more LO’s designing the questions, we need lenders involved so that the questions/answers accurately reflect how loan decisions are made and how the lending process is carried out.
CB:
Thanks for the insight, but I think we need both underwriters and LOs, and maybe the input from few appraisers, title specialists, and escrow folks, too, to come up with relevant education and testing.
I try not to do other people’s jobs in lending, but I do try to understand them, and of course, I am very interested in how underwriters do their jobs.
It appears from my observation that there is more to underwriting a loan than just black and white, and certainly different lenders publish slightly different guidelines, and likely train their underwriters to slightly different standards.
I completely agree that the questions and answers should accurately reflect how loan decisions are made and the lending process is carried out, but I would add that it should include more facets of the process than just the underwriters’ processes and decisions.
The decisions of other parties, including LO’s, are critical to the entire process working.
I’m glad I could keep the subject of testing interesting at least.
Thanks for chiming in!
FYI, there are more than 52 weeks in a year. The real answer would be 52.17857144013.52/12 = 2351.51
Still, pretty easy test.
From an anal-retentive engineer.
“That would be the first time I have ever heard of anyone using 4.33333 weeks in a month to arrive at a monthly income figure.”
That’s how underwriters do it
Cam,
What kind of mistakes did you find on your mortgage docs for your first house?
Wrong numbers in wrong places and math errors. Nothing nefarious, I don’t think. Just sloppy.
What are the correct answers? I got B,C,D,A,C,A.
I guess all licensed professionals, architects included, think that those who came after us have it too easy. JG-
the current ncarb are for architecture licensure is no joke. the field is most definitely more stringent now than it ever has been.
Correct Answers:
If an applicant works 40 hours every week and is paid $13.52 per hour, what is the applicant’s
monthly income?
(B) $2,343.47
The requirement for private mortgage insurance is generally discounted when the loan-to-value ratio falls below:
(C) 80%
Which of the following documents itemizes all settlement costs including lender charges?
(B) HUD-1 form
A discount point is BEST described as a charge the borrower pays to:
(A) a lender to decrease the interest rate on the mortgage loan
Which of the following methods of disclosure does NOT meet the requirements of the Equal Credit Opportunity Act (ECOA)?
(C) Telephone
What does a loan originator use to determine the estimated value of a property based on an analytical comparison of similar property sales?
(A) An appraisal
Jillayne,
Interesting point on the second question. I answered D) 90% only because I read the wording in the question to say when is MI discounted, not when is it eliminated. I am wondering if little details like this will be how the test is a bit tricky to catch people. What are you thoughts?
Hi Clark,
You make an interesting point. Part of the problem comes when non-practictioners are the ones writing the test questions.
If you look up the defition of the word “discount” one of the possible meanings is “to leave out or disregard.”
Imagine the amount of money a person could command if they had, say 30 years of experience in mortgage lending COMPLIANCE and they were also well trained in test-writing. Instead vendors typically will just rely on banks of already-used test questions that may not be worded in such a way for a practitioner with a high school education to understand.
As an educator, this concerns me. But I suppose there will always be a dynamic tension between trying to keep costs down and trying to deliver a quality product.
Actually, the question appears to be worded well. If you look at the structure of the sentence, what is being discounted is the requirement, not the mortgage insurance itself.
These tests are a joke. The reality is that banks and the associations only want the appearance of some kinds of barriers to entry. Banks don’t want high barriers to entry because then they couldn’t use unqualified LOs as “phoneofficers” in their call centers.
Until the industry across the board – banks, brokerages, the associations,and consumers actually demand LOs be true professionals with some real qualifications, nothing will change. A 100 question multiple choice test that anyone can pass is not going to change anything.
We handle the largest financial transactions of most people’s lives yet no college degree is required. There is no defined career path for the industry. Training is nonexistant.
There aren’t any certifications that actually mean something to consumers AND the wholesale lenders. Wholesale lenders bitch about loan quality on the broker/correspondent side but what are they doing to encourage quality origination? As an LO, what if I could get some type of bonding, u/w certification, background check, and other super duper stringent qualifications that would give preferential treatment from wholesale lenders? It would make the investment worth my time.
This whole industry basically needs to be blown up and rebuilt from teh ground up. If we raise the quality of the originator, benefits will continue down the chain.
Russ:
You got it right, as usual.
However, blowing it up is not likely to be the way it gets done.
Lenders are getting more particular about which brokers they will work with, and they are adding minor reward systems, but those are usually directed by profit and volume, not by quality.
I like the idea of lenders adding incentives for higher qualifications. It may catch on, provided it can be proven to be profitable.
“We handle the largest financial transactions of most people’s lives yet no college degree is required. There is no defined career path for the industry. Training is nonexistant.”
The way it has been explained to me is that company owners can make more profit off of a loan originator that has a minimum level of experience because they can justify paying that person less of a commission split.
I know Russ and others could easily make the opposite argument (that a company could make more off of a highly competent LO).
Russ, I love your new phrase “phoneofficers.”
I think with banks shutting down their mortgage loan centers and having moving LO’s into the branches, we’ll have “loantellers”. And yes, they’ll be exactly what Jillayne references above. It’s all about more profit for the banks.
I met a loan-teller this week when I went into my bank that was just purchased by another bank to re-order checks… I should have lied about my career as he cheerfully confirmed my data… I just couldn’t do it. I KNOW he would have tried to sell me a mortgage.
[...] that may be on the exam. One of them is how to calculate income–which is receiving quite a few comments on her post. If an applicant works 40 hours every week and is paid $13.52 per hour, what is the applicant’s [...]