The Pass Rate of the New National Loan Originator Exam is 67%. Who is/isn’t passing?

I’ve had a chance to meet many loan originators during the past 5 months while teaching the required 20 Hour SAFE Comprehensive Pre-licensing and Exam Prep Course.

Currently, loan originators in WA State who have not been previously licensed are going through the licensing and testing phase which includes the required 20 Hour Course, mandated by the Federal SAFE Act (Secure and Fair Enforcement) Act of 2008.

I have some feedback for folks who are looking at the pass rates of the new national exam (currently 67%)  and wondering who is passing and who is not passing the exam. But first some background.

Prior to 2010, loan originators working under a mortgage broker in some states had to become licensed and pass state exams by scoring at least 70%.  State exam included state law, federal law, mortgage-related mathematical computations and a few questions on ethics.  At the end of 2007 WA State had roughly 14,000 licensed LOs.  In 2008 there was a WA state law change in which the definition of the word “lender

78 thoughts on “The Pass Rate of the New National Loan Originator Exam is 67%. Who is/isn’t passing?

  1. “Since, at that time, consumer loan companies were not required to license their loan originators, many LOs who worked under a broker that had to switch their license to a CL license let their loan originator license lapse”

    Not all LOs who were forced to register as a CLA let their licenses lapse… I didn’t, Jillayne, and I don’t think I’m alone. I continued to take c/e courses and maintain my license even though I didn’t have to.

    As far as the difference between CLAs and Mortgage Broker originators…I hope you’re thoughtful when you write about that. I think there’s huge differences between various CLAs and mortgage brokers. Whenever somebody classify a group of individuals with a broad brush, it really concerns me.

    Is Mortgage Master the same as a someone like Paramont? NO!

    How about banks who don’t even have to be licensed? Last night I reviewed a “rate worksheet” from a LO who works for a bank where they’re offering a 3% credit if you work with the builder’s lender; there is no APR with the rate quoted and the rate he/she is quoting cost 0.75% more in discount points than what I would charge for the same rate…yet they’re offering 3% credit if they work w/this lender. Are all bank LO’s (who will not be licensed with the NMLS–only “registered”) bad or uneducated? NO!

    It will be interesting to me to see if you’re able to find out what the difference is–because I think it’s more than the type of licensing we were required to have.

    I think the NMLS licensing is a great step in the right direction–it’s unfortunate it excludes mortgage bankers instead of including ALL originators who take a residential loan application…we can thank our Congress for allowing bank LOs to skate on this.

  2. “LOs can and will pass the exam because they have one thing going for them: Motivation in the form of if they don’t pass, they won’t be able to originate.”

    Jillayne, I think it’s more correct to say that the LO will not be able to originate as a LICENCED mortgage originator. Those LOs who do not pass the national exam or who do not want to take the exam will have little problems getting hired on by a bank or credit union, where their LO’s are only required to be “registered”‘ and not licensed.

    What the SAFE Act has done is created two classes of mortgage originators: licensed and registered (unlicensed) where the requirements of each are quite different.

  3. Hi Jerry. Two questions:

    !) How long does a person attend college/school to become an architect?

    2) Do architect students constantly ask their professor, “is what you’re covering going to be on the exam because that’s all we care about?”


  4. Hi Rhonda,

    I’m afraid consumers, at this point, still don’t really differentiate between how LOs are licensed or unlicensed. The industry will need to start re-educating the public about the difference between the two catagories of LOs.

    Unfortunately the industry has done a very good job of teaching consumers to shop LOs based on rates and fees and not on service or experience. This can and will change but the change will happen gradually over time.

  5. Hi Rhonda,

    Loan Originators who work for a depository lender regulated by a federal banking agency DO have to register with the NMLS. They will receive a unique ID number that they will use when they originate.

    Depository bank LOs will also have to submit a set of fingerprints and go through a background check just like LOs who work for a broker and a consumer loan company.

    But that’s where the similarity ends.

    Depository bank LOs will be referred to as “registered loan originators.”

    Mortgage Broker and Consumer Loan Company LOs will be referred to as “licensed loan originators.”

    Bank LOs don’t have to take the educational classes or pass the exam.
    Broker/CLA LOs have to take a 20 hour class and pass the exam.

    Yes, someone who can’t pass the test could go work for a depository lender, however, in my experience, currently the loan origination industry tends to attract sales-type personalities that don’t particularily like the rules involved with working for a “bank.” They prefer to have more freedom that comes with working for a CLA or broker.

    I absolutely DO know of some LOs who kept their loan originator license active even if they didn’t have to….however, to be completely honest, this is a very small number of LOs. Many let their license go….2008 was a rough year for many who couldn’t afford to pay for their CE classes let alone their licensing fee.

    Mortgage Masters was one firm where the majority kept their license active. Another one that comes to mind is Cobalt Mortgage.

  6. I think SAFE is good for consumers. However, the educational requirements should be for ALL loan originators. A large percentage of borrowers still prefer to deal directly with a bank or credit union. And they might not be aware that SAFE doesn’t apply to loan originators at banks and credit unions. My concern is whether or not the consumer is getting accurate and relevant advice when dealing with the banks and credit unions. If their loan originators are lacking the educational component, the consumer suffers.

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  8. I am all for processes and systems in place to weed out originators. Things have gotten a lot better around here in Chicago as there has been a mass exodus of LOs. Those of us still around are doing very well volume wise, margins are going up, and it “feels” a little more professional.

    This is definitely not a business for those that can’t commit themselves to it 125% right now. It is too hard to get business and it takes quite a bit of skill to get these files to closing smoothly. Part timers or those who don’t who don’t want to fully commit themselves cannot keep up with the changes and guidelines.

    I still think companies need to step up their hiring models though – college degrees, professional backgrounds, real training, etc. Until the employers raise the bar, the test is only going to do so much. The good thing is that many employers are finding that the hiring by the numbers game winds up costing way more money than it is worth. Much better to have one solid producer who can close $10+ Mill at least annually versus three or four part timers who do the same in aggregate.

    The Feds and States model just seems to be more of a “Let’s generate revenue and also make it such a pain in the ass to be an originator that only those with a lot to lose business wise are going to stick around”

    • “The Feds and States model just seems to be more of a “Let’s generate revenue and also make it such a pain in the ass to be an originator that only those with a lot to lose business wise are going to stick around

  9. Hi Rhonda,

    I’m pretty sure all the money for the new set of fingerprints goes to the fingerprinting company and not to the state.

    You’ll have to write a blog post about DFI making you register your domain as a trade name. that sets a precident for other LOs in WA State having to do the same.

    • Jillayne, we don’t pay the fingerprint company, it’s processed through the NMLS. It’s my understanding that the state is collecting a portion of this revenue… do fingerprints change that much in 3 years?

      I prepared a written response which I’m told Marilyn Porter, President of Mortgage Master Service Corporation, has submitted. DFI also didn’t like that sometimes MMSC has abbreviated their name (ex. Mortgage Master Service Corp.) on some of our documents, like loan applications…so now MMSC is figuring out how to cram it all in on 1003s with the DBAs. Ya’d think Corp. and Corporation would be the same…but…nope.

      Once they’re done reviewing my response and we’re done with the process (we just went through a planned audit) I will write a post. DFI also touched on other topics w/me regarding social media. As they’re now on Twitter and writing a decent blog…I look forward to their response to my letter.

  10. Hi Russ,

    You and I both agreee on a lot of things, especially raising the bar for LOs.

    However, I’m also supportive of having many different business models for mortgage lenders.

    One type of business model is to hire loan originators who are sales-minded, come from a background of retail sales (cars, big screen TVs, makes no difference) and then create a bullpen environment for lots of phones to ring all day and all evening long via radio or TV ads, or direct mail marketing. These LOs are theoretically worth LESS to a company because the company pays to feed them leads.

    A firm can hire green people and justify paying them less if the firm does all the work to procur clients.

    LOs with their own set of repeat clients and Realtors is arguably worth a higher commission split. This means a different business model.

    Brand new LOs can go to work at a depository lender and receive education and training but they are also worth less because their leads will literally walk in the door.

    I’m okay with lots of different ways of doing business.

    Regulators will (I’m guessing) not want to raise the bar unless this push comes from the industry because, like Rhonda hinted, regulators like getting lots of licensing fee income each year for their budget. But in all fairness, regulators don’t like seeing consumer complaints about LOs who are breaking state/fed laws and harming consumers either.

    The BIG banks won’t necessarily want to get behind a “raising the bar” campaign because….well they prefer to hire green and pay their LOs less. The big mortgage banks with the TV, radio, web, direct mail ads don’t necessarily want their LOs to have college degrees either.

    A “raise the bar” push will need to start at the grassroots level with career-type mortgage bankers and mortgage brokers who have experienced first hand the needs for LOs with a different kind of mindset, beyond the “hard close” type of LO.

    We have thousands of LOs still left in the industry nationwide who still consider themselves salesmen who work inside a corporation where the corporate culture REWARDS them for acting this way. I meet them every day.

    It’s going to take a decade to either 1) rotate these people out of the industry; or, 2) change their mindset.

    Or……….maybe……..that Fed Reserve rule will pass and the way LOs are paid will radically change, leading to more dialogue. That would make a good blog post.

    • Jiillayne, I’ve been thinking about how you’ve categorized the difference between originators based on the type of institution they work for… and really IMO it boils down to the culture of the company they work for. It doesn’t matter what type. Every type of institution has their better or worse examples.

      Not all bank LOs are good or bad… we can point to WaMU and we know not all bank LOs are like WaMU–it was their culture that created or enabled those LOs…same with Countrywide.

  11. Hi Laura,

    The banks were able to exempt themselves because they told Congress that they already had systems in place to train new LOs.

    In my experience, credit union boards are voting to send their LOs to the SAFE class and pass the test even though it’s not required.

    someday…someday! Someday bank LOs will be required to pass the new LO exam and take the 20 hr class. Patience.

    • …you just have to follow the money… if Congress really cared about what’s best for consumers, they would have all LOs held to the same standards (licensed).

      WaMU was a bank…we’ve heard their testimony recently about what a cluster it was with the regulators…its an absolute sham and a scandal.

      Licensed Loan Originators should be proud of their new designation. The SAFE Act has created two classes of mortgage loan origanators and I plan on making sure consumers I work with know the difference.