Will the New National Loan Originator Exam be Too Easy?

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.

83 thoughts on “Will the New National Loan Originator Exam be Too Easy?

  1. 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?

  2. 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.

      • 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.

  3. 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.

      • 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.

  4. 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…

      • 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

  5. 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.

    • the current ncarb are for architecture licensure is no joke. the field is most definitely more stringent now than it ever has been.

  6. 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.

  7. 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.

  8. 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.

  9. Pingback: Calculating Income of Employed W2 Borrowers for Mortgage Qualifying | Seattle Real Estate | Rain City Guide

  10. As long as you take the course for this exam or been a loan officer for 1 to 5 years and know how to originate, process and close the loan, most exam will focus on the paper works involve in closing the loans such as loan application, settlement cost, term, interest rate. supporting documents, etc. so the exam must not be too complicated if you are one of them. In order to test your ability, enroll with the review course and take the sample exam without reading anything and see what you know.

  11. Pingback: New National LO Exam Pass Rate 69% : National Association of Mortgage Fiduciaries

  12. Oh by the way I made a 98 on the test I took in CE class and was told it would mirror the National exam. In know way did it mirror the exam. I passed both State and National but with an 86 and an 88. Please don’t believe the test questions you have posted are any example of what is really on the tests.

  13. I just took and passed the national exam. Still waiting to take the ca state exam. Was told today that the test was pulled back after I showed up for my appointment. I can tell you that every sample test I took was much easier than the actual test. Yes there are some no brainer questions but most of my test was on regulations. I had very few math related questions. The wording of some of the questions for the regulations and ethics portion can be tricky so read them carefully. Based on my test you will need to know your regs in detail (ecoa,tila,respa etc) if you know basic math you can solve the few math related items. Interested on how hard the ca state specific will be

  14. Hi Ryan,

    Thanks for stopping by. Yes, those sample questions certainly sounded too easy. Glad to hear the bar is set higher for the actual exam. Your reported experience mirrors what NMLS says in their Exam Candidate Handbook. The lesson from Ryan: Know Your Regulations!

  15. I got my NC loan officer license in July 2004. NC has been leading the way in LO licensing, testing, and regulations. I studied extensively for many weeks for our exam in 2004 and only missed 2 questions on the state and national components combined.

    I just took my national exam Wednesday and got a 90. I missed 9 questions on the national part of the exam, so I would say that No, the national exam is not too easy. Many of the questions are worded tricky so you really have to know the answer. I took the time to re-read the entire test before I completed it and changed a few answers that I realized on the 2nd time through were worded tricky and I had originally answered them incorrectly. Plus, I thought a few questions were worded in ways that are not industry standard as Clark Davis mentioned might be a problem.

    The math questions are pretty simple if you understand the concepts and can do basic math. However, they are made a little more tricky by including information not necessary to complete the problem. So, you can conclude the wrong answer if you use the wrong information and think you are correct because that is a choice in the answer options.

    You definitely have to have a solid understanding of the basics of how the mortgage industry works and how to originate & process a loan. With 6 years experience, I found these questions easier. Based on my test, know your regulations !!! Even the obscure ones and the new ones, especially RESPA & ECOA. I think I had at least one question on every one of the regulations. Here are the regulations you should know … RESPA, RESPA section 8, RESPA disclosure dates, TILA, HOEPA, FCRA, FACTA, ECOA, ECOA disclosure dates, HMDA, FHA (Fair Housing Act), CRA, GLBA, TSR, USAPA, NFIA, HPA, CSBS-AARMR, Red Flags. Also, know the agencies associated with the mortgage industry … HUD, FTC, Federal Reserve Board, FDIC, OFAC, FNMA/DU, FHLMC/LP, FHA (Federal Housing Admin), VA, USDA.

    Jillayne, you mentioned that once the test launched you would go take it and let us know. What did you think of the test and how did you do ?

  16. I got my NC loan officer license in July 2004. NC has been leading the way in LO licensing, testing, and regulations. I studied extensively for many weeks for our exam in 2004 and only missed 2 questions on the state and national components combined.

    I just took my national exam Wednesday and got a 90. I missed 9 questions on the national part of the exam, so I would say that No, the national exam is not too easy. Many of the questions are worded tricky so you really have to know the answer. I took the time to re-read the entire test before I completed it and changed a few answers that I realized on the 2nd time through were worded tricky and I had originally answered them incorrectly. Plus, I thought a few questions were worded in ways that are not industry standard as Clark Davis mentioned might be a problem.

    The math questions are pretty simple if you understand the concepts and can do basic math. However, they are made a little more tricky by including information not necessary to complete the problem. So, you can conclude the wrong answer if you use the wrong information and think you are correct because that is a choice in the answer options.

    You definitely have to have a solid understanding of the basics of how the mortgage industry works and how to originate & process a loan. With 6 years experience, I found these questions easier. Based on my test, know your regulations !!! Even the obscure ones and the new ones, especially RESPA & ECOA. I think I had at least one question on every one of the regulations. Here are the regulations you should know … RESPA, RESPA section 8, RESPA disclosure dates, TILA, HOEPA, FCRA, FACTA, ECOA, ECOA disclosure dates, HMDA, FHA (Fair Housing Act), CRA, GLBA, TSR, USAPA, NFIA, HPA, CSBS-AARMR, Red Flags. Also, know the agencies associated with the mortgage industry … HUD, FTC, Federal Reserve Board, FDIC, OFAC, FNMA/DU, FHLMC/LP, FHA (Federal Housing Admin), VA, USDA.

    Jillayne, you mentioned that once the test launched you would go take it and let us know. What did you think of the test and how did you do ?

  17. Hi Angela,
    Thanks for stopping by and sharing your experience. There’s an NMLS rule that prohibits a person from taking the exam solely for the purpose of gathering information about the exam and telling other people. The ONLY reason a person can take the exam is to obtain a loan originator license. Since I only do compliance and do not actively originate, I will not be taking the new exam.

    I do hear lots of feedback from students who took the exam and that feedback matches your experience.

    The sample questions in the MLO Test Candidate Handbook are very easy and it is unlikely that a test taker would see those repeated on the exam.

    The pass rate as of today is 71 percent for first time test takers. Those who fail and take the exam a second time…..well the pass rate for those folks drops to 44 percent.

    71 percent is a good, healthy pass rate for this industry at this time.

    I would have expected a higher pass rate because the majority of people taking the exam are experienced originators.

  18. Hi Angela,
    Thanks for stopping by and sharing your experience. There’s an NMLS rule that prohibits a person from taking the exam solely for the purpose of gathering information about the exam and telling other people. The ONLY reason a person can take the exam is to obtain a loan originator license. Since I only do compliance and do not actively originate, I will not be taking the new exam.

    I do hear lots of feedback from students who took the exam and that feedback matches your experience.

    The sample questions in the MLO Test Candidate Handbook are very easy and it is unlikely that a test taker would see those repeated on the exam.

    The pass rate as of today is 71 percent for first time test takers. Those who fail and take the exam a second time…..well the pass rate for those folks drops to 44 percent.

    71 percent is a good, healthy pass rate for this industry at this time.

    I would have expected a higher pass rate because the majority of people taking the exam are experienced originators.

  19. Jillayne:

    I suspect a lot of experienced LOs fail because the test doesn’t test originator ability, but compliance and laws. Some of the worst LOs I know can tell you every in and out regarding compliance and laws but they couldn’t close a loan if their life depended on it.

    You also have to remember that the low barriers to entry generally means that the vast majority of LOs much like Realtors are not that sharp. I think a 71% pass rate is pretty pathetic personally for a 100 question multiple choice test. It isn’t like we are sitting for the Bar. And to think a large number of LOs at the TBTF Banks can skip testing altogether.

  20. Hi Russ,

    Our experiences differ once again! The best loan originators I know are former processors who absolutely know their laws/regs and also know what it takes to close a loan.

    The vast majority of loan originators I’m meeting these days are actually a much higher caliber of LO compared to the top of the bubble, 2005-2008.

    The new to newer LOs who have never originated come from a wide variety of backgrounds. CPA, insurance agents, construction, pilot, nurse…these folks have a very different mindset from the subprime originators who typically had a sales background of some sort but had not ever had to pass a comprehensive licensing exam. Yes they could sell, sell, sell and close deals, deals, deals but they were never taught about RESPA, RESPA RESPA, TILA, TILA TILA or ECOA ECOA ECOA.

    How many weeks or months was it before you had your sea legs and had the ability to get deals closed?

    When I ask that question, LOs typically say it was weeks…months before they felt the had learned those abilities, which come later, on the job and are not taught in 20 hours.

    Course providers have time to cover ONLY the basics in 20 hours.

    The basics ARE laws and rules governing the industry. Not “how to get a deal closed.”

    I’d say that comes much, much later and this is the job of management to teach/guide new LOs through many transactions, and not something that would be easy to test a brand new person on.

    The current 71 percent pass rate is weeding out many people who are functionally illiterate who were still originating and people who did not have a grasp on the english language who were still originating as well as brand new people who simply do not have the experience to know the answers to routine questions involving our industry that you and I take for granted.

    The experienced originators who failed the test the first time got an embarrasing wake up call and all of a sudden found motivation to study. They’re passing the second time.

  21. Hi Russ,

    Our experiences differ once again! The best loan originators I know are former processors who absolutely know their laws/regs and also know what it takes to close a loan.

    The vast majority of loan originators I’m meeting these days are actually a much higher caliber of LO compared to the top of the bubble, 2005-2008.

    The new to newer LOs who have never originated come from a wide variety of backgrounds. CPA, insurance agents, construction, pilot, nurse…these folks have a very different mindset from the subprime originators who typically had a sales background of some sort but had not ever had to pass a comprehensive licensing exam. Yes they could sell, sell, sell and close deals, deals, deals but they were never taught about RESPA, RESPA RESPA, TILA, TILA TILA or ECOA ECOA ECOA.

    How many weeks or months was it before you had your sea legs and had the ability to get deals closed?

    When I ask that question, LOs typically say it was weeks…months before they felt the had learned those abilities, which come later, on the job and are not taught in 20 hours.

    Course providers have time to cover ONLY the basics in 20 hours.

    The basics ARE laws and rules governing the industry. Not “how to get a deal closed.”

    I’d say that comes much, much later and this is the job of management to teach/guide new LOs through many transactions, and not something that would be easy to test a brand new person on.

    The current 71 percent pass rate is weeding out many people who are functionally illiterate who were still originating and people who did not have a grasp on the english language who were still originating as well as brand new people who simply do not have the experience to know the answers to routine questions involving our industry that you and I take for granted.

    The experienced originators who failed the test the first time got an embarrasing wake up call and all of a sudden found motivation to study. They’re passing the second time.

  22. Jillayne:

    I guess it depends on how you define good loan originator. No doubt that knowing rules, regs, and compliance is important, however, good LOs do more than just read regs and worry about whether to use blue ink or black ink. From a business standpoint, knowing how to actually get the loan closed is what is important. The daily mechanics of being an LO rarely has anything to do with the ins and outs of compliance but understanding underwriting guidelines, setting up a file, counseling the borrower, dealing with all the other involved parties, etc.

    Ultimately, an LOs job is to bring in business and that is how we are compensated.

    again, not saying compliance isn’t important, but it really has nothing to do with anything that LOs do daily for the most part. It is something we are aware of and try to do properly, but that stuff does not get the deals closed which is what puts food on the table, not whether we can quote obscure regs in 50 different states.

    At the end of the day, an LO is either closing deals or they aren’t. There is no in between.

    I have seen a lot of back office folks from processors to underwriters come and go trying to be loan originators and most fail miserably because they simply cannot generate business. It all looks easy from the outside looking in.

  23. Jillayne:

    I guess it depends on how you define good loan originator. No doubt that knowing rules, regs, and compliance is important, however, good LOs do more than just read regs and worry about whether to use blue ink or black ink. From a business standpoint, knowing how to actually get the loan closed is what is important. The daily mechanics of being an LO rarely has anything to do with the ins and outs of compliance but understanding underwriting guidelines, setting up a file, counseling the borrower, dealing with all the other involved parties, etc.

    Ultimately, an LOs job is to bring in business and that is how we are compensated.

    again, not saying compliance isn’t important, but it really has nothing to do with anything that LOs do daily for the most part. It is something we are aware of and try to do properly, but that stuff does not get the deals closed which is what puts food on the table, not whether we can quote obscure regs in 50 different states.

    At the end of the day, an LO is either closing deals or they aren’t. There is no in between.

    I have seen a lot of back office folks from processors to underwriters come and go trying to be loan originators and most fail miserably because they simply cannot generate business. It all looks easy from the outside looking in.

  24. MARSHA MARSHA MARSHA!! 😉

    Jillayne, just because a LO passes the exam, doesn’t mean they’re good–I totally agree with Russ. Some people are more book smart or test better than those who are “street smart” or may very well know RESPA, TILA, ECOA, MDIA, etc. but simply don’t test well due to nerves or other issues… all the more reason why LOs who are licensed and required to pass the exam should take it as soon as possible.

  25. From a business standpoint, knowing how to get deals closed is important.
    From a regulator’s standpoint, knowing how to get deals closed while also following state/fed law is important.

    If we look back at the bubble, we see thousands of loan originators who entered the business with LITERALLY NO TRAINING AND EDUCATION WHATSOEVER ON LAW AND REGULATIONS. But they got lots of deals to close and made lots of money for their company owners and managers. Many of those loans are performing and many are in foreclosure.

    Clearly thousands of business owners nationwide showed the world they could care less about laws. Especially now that we’re seeing people being indicted on a daily basis for fraud all across the nation.

    I’ve met loan originators who had been originating for years AND THEY HAD NEVER SENT OUT A GOOD FAITH ESTIMATE OR TILA….EVER….FOR YEARS.

    Clearly
    Business owners
    only
    want
    deals
    to
    close

    and compliance is a distant second. Without the SAFE Act I assure you compliance would always be on the back burner for sales-type people and the managers who earn money off their backs.

    Thank you for showing the world why we have the SAFE Act, Russ.

  26. From a business standpoint, knowing how to get deals closed is important.
    From a regulator’s standpoint, knowing how to get deals closed while also following state/fed law is important.

    If we look back at the bubble, we see thousands of loan originators who entered the business with LITERALLY NO TRAINING AND EDUCATION WHATSOEVER ON LAW AND REGULATIONS. But they got lots of deals to close and made lots of money for their company owners and managers. Many of those loans are performing and many are in foreclosure.

    Clearly thousands of business owners nationwide showed the world they could care less about laws. Especially now that we’re seeing people being indicted on a daily basis for fraud all across the nation.

    I’ve met loan originators who had been originating for years AND THEY HAD NEVER SENT OUT A GOOD FAITH ESTIMATE OR TILA….EVER….FOR YEARS.

    Clearly
    Business owners
    only
    want
    deals
    to
    close

    and compliance is a distant second. Without the SAFE Act I assure you compliance would always be on the back burner for sales-type people and the managers who earn money off their backs.

    Thank you for showing the world why we have the SAFE Act, Russ.

  27. Rhonda,

    some people are born clever, others are taught their street smarts from their managers. You have only worked at one company and experienced one very solid management team and received lots of mentoring. Regulators aren’t going to test people on their street smarts or on their ability to get a loan closed.

    Those skills take time to develop under management direction and won’t be on the exam.

    “good” is a word that we could take years to debate and deserves its own post.

    • Jillayne, I think you may be missing my point… you can read a book and know all the rules and technicalities about soccer (football) — you may know more than most about it, but be the worst player–not be an athelete. Where a talented, dedicated soccer (football) player may not know all the rules, but is the most skilled athelete.

      There’s a difference between book smart and knowing how to put a deal together and how to serve clients.

      I think of my days when I was a manager of a title branch–some people are excellent at the interview but suck once hired… while others may not seem so great during the interview but be outstanding employees.

  28. Rhonda,

    some people are born clever, others are taught their street smarts from their managers. You have only worked at one company and experienced one very solid management team and received lots of mentoring. Regulators aren’t going to test people on their street smarts or on their ability to get a loan closed.

    Those skills take time to develop under management direction and won’t be on the exam.

    “good” is a word that we could take years to debate and deserves its own post.

    • Jillayne, I think you may be missing my point… you can read a book and know all the rules and technicalities about soccer (football) — you may know more than most about it, but be the worst player–not be an athelete. Where a talented, dedicated soccer (football) player may not know all the rules, but is the most skilled athelete.

      There’s a difference between book smart and knowing how to put a deal together and how to serve clients.

      I think of my days when I was a manager of a title branch–some people are excellent at the interview but suck once hired… while others may not seem so great during the interview but be outstanding employees.

  29. Hi Rhonda,

    Thanks for the clarification. I definitely agree with both you and Russ on who’s going to be successful.

    The point of this blog post is not what makes a succesful LO but the national loan originator exam.

    Regulators aren’t going to test LO candidates on “who’s going to be successful” type of character traits.

    …and personally, I think we have no shortage of people who can make a sale and no shortage of people who want to work hard. Nothing wrong with those character traits at all.

    My point is…..Why can’t we have both? LOs with desirable character traits as well as LOs who know federal and state lending laws?

    The SAFE Act exam adds the element that was missing.

    Business owners like Russ will always want to prioritize the “get ‘er closed” character traits and regulators will alway want to prioritize following their rules. Now we have both.

    A brand new LO ONLY builds the kind of skills and traits you and Russ like with on the job experience and it’s not something that can be tested for AND 20 hours is not enough time to teach (and test for)those skills in the classroom.

  30. Hi Rhonda,

    Thanks for the clarification. I definitely agree with both you and Russ on who’s going to be successful.

    The point of this blog post is not what makes a succesful LO but the national loan originator exam.

    Regulators aren’t going to test LO candidates on “who’s going to be successful” type of character traits.

    …and personally, I think we have no shortage of people who can make a sale and no shortage of people who want to work hard. Nothing wrong with those character traits at all.

    My point is…..Why can’t we have both? LOs with desirable character traits as well as LOs who know federal and state lending laws?

    The SAFE Act exam adds the element that was missing.

    Business owners like Russ will always want to prioritize the “get ‘er closed” character traits and regulators will alway want to prioritize following their rules. Now we have both.

    A brand new LO ONLY builds the kind of skills and traits you and Russ like with on the job experience and it’s not something that can be tested for AND 20 hours is not enough time to teach (and test for)those skills in the classroom.

  31. Jillayne, I don’t define “successful” as the LO who closes the most loans, I think it should be defined as the person with the highest percentage of clients who understand what they’re signing at escrow, still like their LO at closing and who will return and refer friends to that LO for years to come. They do this not because the LO understands the nitty gritty of RESPA, TILA, MDIA…but because the LO explained their options, helped them make educated decisions, was available for their questions and did this at fair fee/rate.

    I strive to be successful based on those terms and it’s worked for me–and I’ll admit, I’m going to have to study up for the national exam. I don’t profess to knowing every aspect of our regulations and some of them, I may not completely agree with or like much — but we have to follow the law.

  32. National MLO Test is difficult to understand. I took it and failed it once, totally different style, and method of formatting the questions and the answers. They are out of content of Federal laws, Mortgage loan process, but General knowledge and Ethics questons are understandable. NMLS& Registry don’t want their candidate to pass the test in one or two tries. NMLS should make is little easier to pass the test. Need feedback on this concept. Thanks.

  33. I have been an MLO for ten years but only originated loans for three finance companies, not a broker. I do not make commission on my loans and only do refinances and home equity loans, so taking this test was the hardest test I have ever taken in my life and I have a college education. I am not happy that LO’s for banks do not have the same requirements. I sure hope the folks that have made comments about how “easy” this test is have actually taken this test. I passed the state exam the first try with an 87, but this National exam has really got me. I have been studying since Feb.2010 to take this exam and taken it three times and only made a 72 all three times. When you work in such a limited area of the mortgage industry where you only make two types of loans, it is really complicated to wrap your head around the rules and aspects of other loans. I feel that this test is extrememly hard, and you come away from it with so much knowledge whether you pass or fail it. I am not sure where some of you are getting your pass rate information. I have taken my test at a Pearson testing center, and have been told that the pass rate at that particular center is averaging 17%, last time I was there the employee said the friday before that, they had 37 people scheduled to take this exam and only 16 people passed, and this is a consistent number. So, for the consumers out there, rest assured that this is not a simple test, also realize that in order to get a lisence in addition to taking the state and national exam, we have been finger printed, every aspect of our personal lives have been pried into, We have to have an annual credit report pulled on us to ensure our own financial stability ( which is very very strict by the way, no judgements, bankruptcy, no poor payment history allowed), also we have to have a full background check both on the state and federal level, and you cannot have anything on your record that indicates any guilt of being a dishonest person. So, no, we are not getting by easy.

  34. Hi Jamie,

    Yes, I agree. People who only originate in one or two narrow areas of the industry are having a very tough time passing this exam. Are you still trying to pass the exam? Give me a call tomorrow. I’m going to ask you some questions and give you some tips, especially on the ethics questions. Depending on where you’re scoring low and where you’re scoring high it sounds like you are really close to making it.

  35. Pingback: 13 Reasons Why 30% of LOs Fail the National Loan Originator Exam | Rain City Guide

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