About Jillayne Schlicke

Educator in the field of mortgage lending and real estate. Follow me on Google+

Teaching Realtor Clock Hour Classes in Washington State: Getting Started

I’m writing this post because I am often asked how to get started teaching Realtor clock hour classes.  There are a million ways to answer this question.  Do you want to know what the state requirements are? I can easily point you in the direction of Washington State’s required forms but the form won’t tell you how to get up and running. This form will tell you how to get yourself approved as an instructor.  Getting up and running is a different question and that’s the question I will answer in this post.  I have found that the best way to help people is to start at the end.

What’s your end game? Do you want to teach Realtor clock hour classes because you want to make a lot of money? Maybe you don’t care about the money because you have some other job where you already make pretty good money but instead want to use the classes as a way to get in front of Realtors so you can show them how awesome you are…so they will refer business to you.  I have found the latter to be the most common reason why people want to begin teaching Realtor clock hour classes. But let’s talk about money first.


There isn’t a whole lot of money in teaching live classes because…well…because there are so many vendors who are willing to teach low quality CE classes for free.  There are also many large companies willing to send one of their full time employees to teach classes and at conventions for free. These instructors have full time jobs in management, sales, law, tech, etc., and teach classes or at conventions as a public relations maneuver for free, or for a very, very low fee. There’s a word for it. I call it sales-ucation.  Big conventions only pull out big paychecks for the big name draw convention speakers.  I’m assuming you’re not a big name convention keynote speaker if you’re reading this article so I’m going to tell a secret to the rest of you who are not sales-ucation speakers.  There always IS a budget of some sort and they always WILL pay you something—if you ask.

Money, continued
Three Puzzle Pieces: Teaching, Writing, Warm Butts

If you are looking to teach Realtors as a career, AND you can write your own classes you’re on your way. The last piece of the puzzle will be—how are you going to get warm butts in chairs?  You need to be able to do all three: Teach a kick-ass awesome class, constantly write new material, and have a marketing machine that delivers students into the classroom.  Most people who want to teach….want to teach and that’s it.  They want to walk into a classroom filled with students and walk out with a paycheck.  If that’s all you want to do, your value to a real estate school is really, really low.  But that’s okay, and there are real estate schools out there who may hire you but don’t expect to be paid much per hour or per class.

Vendors and The Numbers Game

Maybe you’re a vendor and…well, now don’t be offended if I call you a vendor.  You might be thinking…..I’m a loan originator! I’m an appraiser! I’m an attorney! I’m an escrow officer!  I hate to be the one to break the news to you but to a Realtor you’re just another vendor. Check your ego over there on the edge of the computer screen and don’t get offended if I call you a vendor.  So vendors typically want to use the classroom as a way to grow their business.  It’s a numbers game.  You get in front of X number of Realtors each month will translate into X number of referrals which will translate into X number of leads which will translate into X number of deals which will translate into X number of closed transactions which, on average, will net you X number of before-tax dollars per month.

This is a great strategy and it is doomed to fail. I will hire no one to work at my company if all Realtors are to you is a dollar sign or a lead in a grand master plan. People aren’t objects.  Students aren’t there to be used and even if you (please don’t) teach your class for free, the Realtors are still paying with their time.  Their time is valuable and if all you are doing is a sales song and dance about how much you know and how awesome you are you will fail.  This is what gives Realtor clock hour classes a bad name.  Instructors are in the classroom to help people learn.  They are not there to sell.

Magic is Mystery

So here’s the magic. As a vendor, I know you want deals. Everybody knows you want deals but if you go in there with your deal-wanting pants on, everybody’s going to know it. Instead, you need to approach teaching like a good book.  Nobody goes right to the end of a good book to find out what happened. It’s a mystery. That’s what makes reading so enjoyable.  If you really want to find success in the classroom, and by success I mean meeting your math goals in the previous paragraph, you need to let go of the outcome and instead focus on teaching an awesome, kick-ass class.  A class better than any class they’ve ever had from your competitor.  If you teach an awesome class, they will call you. You get to pick and choose who you want to work with. That’s right. At the end of a 4 hour class, you will know which Realtors you want to work with and which Realtors you don’t want to work with.

The Good News

Title insurance, mortgage lending, home inspections, escrow, all of these vendors have reputations for delivering “free” classes that are god-awful boring. That’s the good news. The bar for free vendor classes has been set terribly low.  All you have to do is to teach even a marginally decent class and they’ll think it’s the best class they’ve ever taken.

So what’s the difference between a god-awful boring class and a kick-ass awesome class? A class where the instructor DOES NOT lecture.

It’s Hard But It’s Also Easy

The most difficult thing for most all clock hour instructors to get their heads wrapped around is that your mouth doesn’t have to be moving the entire time. Unless you attended a fancy prep school in your younger days, most of us attended school where the teacher did most of the talking and we think we have to do that to teach Realtors.  That “teacher knows everything” archetype is embedded in our psyche.  That’s not what adult learners want from their clock hour instructors. Adult learners want to get involved with their learning and that means you don’t have to be the one talking all the time.  This is hard but also easy.

Step 1

The first step is to get into the right Instructor Development Workshop.  Find out who is in charge of the workshop, who is teaching it, how long they’ve been teaching Realtor clock hour classes and how familiar they are with the facilitation model of adult learning.  There are many IDWs out there.  Some are cheaper than others, some are online. You do get what you pay for. Shop around and ask questions.  Will the instructor answer all your questions about getting up and running during the workshop? Will the instructor help you fill out your state-required paperwork? Will the instructor give you the opportunity to try out the facilitation style of learning so you can get a feel for how it really works?  Find the very, very best Realtor clock hour instructor you know who teaches a lot of interactive, fun classes and ask that person for a recommendation on where to take an IDW.

Step 2

The second step is to figure out if you’re a writer.  If you don’t know how to write classes, don’t want to write classes, or don’t have time to write, then you’ll need to hook up with a real estate school that already has classes written that you can use but remember, no school is going to let you teach their material for free. There will always be a fee involved but you can let the students pay that fee if you don’t want to pay it.  Real estate schools like mine can also help you write something completely unique and brand new.  The class must be written to allow the instructor to give the students lots of things to do. The old-style class just gives the instructor lots of things to SAY.  That is a recipe for a boring class.   Just mailing a set of powerpoint slides to the Dept of Licensing won’t cut it. They want specific learning objectives. Real estate schools know how to write classes that the Dept of Licensing will approve.

Step 3

The third step is to figure out how you’re going to get warm butts in chairs.  The easiest way vendors think they will meet this goal is to offer free classes.  Unfortunately when you teach for free you are telling the Realtors what you have to teach them has no value.  Unless YOU own the real estate school and you own your own courses, you OR the students will be paying another real estate school a fee to use their school and courses. Having your own school is also an option but you still haven’t solved the warm butts in chairs problem.  So until then, make a list of possible marketing partners such as a local Association of Realtors or other vendors that also sell to Realtors.  Whatever real estate school you’ll be working with can also help you with marketing ideas.  You can have a great class and know how to teach an interactive class and then end up with nobody showing up.  The marketing piece is crucial to meeting your goals. Marketing takes time and money.  Just sending out a flyer to your email database of 500 Realtors might net you 5 students. If all you have is emails, you need BIG numbers to net 10 students.  If you don’t even have a database of Realtors you’ll need to buy one or partner with someone who has one.

Other Options

In closing, teaching Realtor clock hour classes is a big time commitment.  Not everyone can meet that time commitment, but they still want to attempt to meet their goals. Another option, without actually taking the time commitment needed to be an instructor, is to just sponsor a clock hour class through your local Realtor association. You bring in some healthy food like fruit and protein bars (can we ditch the donuts and muffins and bagels? All those simple carbs are increasing the LDL cholesterol levels of Realtors as I write this.  Enough of that crap already) and then you have a few moments to address the audience.  This is an option for you to create some face time but that’s all it is. Most vendors don’t stay for the whole class.  Drop and go is the status quo and I’m sure the ROI is not very high.  But it DOES make you feel like you’re accomplishing something if a “feeling” is the goal.

Think about your endgame and if you’ve decided to become an instructor, go back and read Step 1.


National Coming Out Day; We’ve come a long way in real estate and lending

October 11th is National Coming Out Day.  As an educator in the real estate and mortgage lending sector, I enjoy hearing stories from students about what it was like to sell real estate and originate loans in the 1950s and 1960s, before the Fair Housing Act of 1968 and the Equal Credit Opportunity Act of 1974.  The young-youngsters in the room are a bit taken aback to hear real-life stories about neighborhood segregation, discrimination against Jews or African Americans, and denying credit to women.  Blockbusting, redlining, and racial discrimination as well as mortgage lending discrimination happened to people who are still around to tell those stories because it really wasn’t that long ago.

It’s time for a ban on all third party short sale negotiators.

Not a day goes by that I do not hear a story from a Realtor, loan originator or consumer about a questionable if downright bad experience with a third party short sale negotiator. We’ve reached a point in time where we ought to consider eliminating all third party short sale negotiators. At the end of this article I will provide suggestions for home sellers, home buyers, real estate brokers/Realtors, attorneys, and regulators in order to maximize good consequences and minimize bad consequences for all parties.

Yesterday I received a frantic call from a homebuyer we’ll call Maggie, who found me online via this blog post. Maggie fell in love with a short sale house but after her offer was accepted and moving toward the close of escrow, the third party short sale negotiator announced that since the lender would not pay his full fee (short sale negotiator was already being paid $3000), as the buyer, she would have to come up with an additional $7,000 at the close of escrow.  Maggie was in love with the house but didn’t have the extra 7K so the third party short sale negotiator suggested she get a loan and pay him after the close of escrow.

There are so many things wrong with the above scenario I don’t even know where to begin.  So let’s begin at the beginning. The growth of fee-based, third party short sale negotiators was fueled by a perfect storm:

1) Collapse of the real estate bubble and resulting growth of over-mortgaged homeowners.
2) Rapid growth in the need for real estate listing brokers who know how to negotiate a short sale.
3) Decimation of the subprime industry and resulting out-of-work loan originators and Realtors.
4) “Get rich quick

Are the “Cash Call” Radio Ads Advertising a 10 Year Fixed Rate Mortgage Bait and Switch?

I listen to 97.3FM and am a longtime listener of Dave, Luke, Dori (accidentally listening since 1995), Ron, Don, John, @thenewschick and @joshkerns38. I am so sick and tired of hearing the Cash Call radio ads that every time one of the ads run, I switch over to satellite radio and I’ve been meaning to write this blog post for many weeks so here it goes. 

Radio listeners: There’s nothing inherently wrong with mortgage companies that advertise on the radio. This is one business model of many but realize that radio ads are not inexpensive and there are a few ways that a mortgage company can pay for their advertising. One way is to charge you higher interest rates.  But wait, how could they do that when they’re advertising low, low mortgage rates? 

The answer is one you will not want to hear but I’m going to tell you anyways:  The rates advertised are likely NOT the rate that you will get.  The rate advertised is for a loan program that only a very small percentage of people will qualify for.  People with credit scores above 740. People with lots of equity in their homes, people who want a 10 year mortgage, or in the case of Cash Call, people who ONLY live in the state of California.  That’s right, the radio ad that’s running in Seattle comes with one caveat: It’s only avail for California borrowers.

To their defense, the Cash Call radio ad airing on 97.3FM does state that the rate and APR advertised are for a 10 year mortgage but realize that only a very small percentage of people calling that firm will end up with a 10 year mortgage.  This might come very, very close to a classic bait-and-switch scheme without crossing over the line but we don’t have enough facts to make that determination.  For example, one of the facts we’d need is to know how many people who called in actually chose a 10 year loan v. a 30 year fixed loan. So instead of selling a bunch of 10 year loans, the reason for their radio ad is to motivate radio listeners to pick up the phone and call after hearing the low rate and APR.

So, who’s on the other end of the phone?  The answer shows us another way companies that advertise on the radio make money. 

Any consumer who is curious about the licensing status of their loan originator can use the Nationwide Mortgage Licensing System’s Consumer Access website to check on the status of a mortgage company or individual loan originator.  When searching for the company name CashCall you’ll see many, many licensed LOs, okay that’s good. But dig a little deeper and you’ll notice that each person’s employment history contains many months of unemployment right around the subprime meltdown and lots of jobs held at subprime shops or other companies that only do radio or TV ads…Ditech, Amerisave, Countrywide, and other low wage side jobs outside of the mortgage industry.  That leads to the second part of how these companies make money advertising on the radio.

If they can’t offer you the lowest rates they’re advertising, then another way to make money is for the radio-advertising mortgage company to pay their staff a really low fee.  This is justified by the firm because…the company is making the phone ring! All the LO has to do is sit there, answer the phone and close the customer.  This is loan origination at its worst and if you don’t believe me just simply google:  Cash Call Complaints or Quicken Loans Complaints and see how many dis-satisfied customers they’ve left in their wake.

Homebuyers and refinancing homeowners should be wary of ANY mortgage lender that operates out of state and has no physical prescence in your state. 

Homebuyers and refinancing homeowners should always check the licensing status of their loan originator here and if their LO is not in the NMLS system ask WHY and ask to speak with their manager. Mortgage brokers and non-depository mortgage lenders must license their LOs. Depository bank LOs begin registering their LOs within the NMLS system this year. Maybe the person on the phone calls himself/herself an intake specialist or a loan arranger. Ask to speak with a Licensed LO. If there are no licensed LOs then you’re probably dealing with a lead generation company and I’ll do a serious smackdown on lead gen firms in another blog post.

Companies like Cash Call and Quicken hire the loan originators who have no client base, don’t want to work hard enough to earn repeat business, only work part time, will work for a low wage, and/or are paid to close deals and not serve the best interests of their clients.  Do you want low rates? Go ahead and use one of these companies but you should have extremely low expectations of your rate being as verbally promised or the transaction closing at all. Expect pain and suffering. Some people pay extra for that, but now we’re getting off track.

Do you want your transaction to close? Select a loan originator based on his or her experience and knowledge. Choose a local company with a loan originator located right in your city so you can go into the office and meet with him or her face to face at application.  Yes, this will take time. Do you want your transaction to close and also get a fair interest rate? Then that means you will have to invest some time into understanding your options and understanding the documents you’re signing and that means human interaction whether that’s phone, email, text or facebook messages.  You will need someone to respond to your questions who knows what they’re doing.  It is impossible to be a part time loan originator and serve your clients efficiently because there are far too many changes taking place on a daily basis. 

Kiel Mortgage radio ads are great. The radio ads from TILA Mortgage have improved over the years.  Best Mortgage’s ads are fine.  These are all LOCAL Seattle area companies with local loan originators and company owners who have been serving homebuyers and homeowners for decades.

I notice that on the Cash Call website, and on KIRO 97.3 FM, they’re advertising a “no cost” mortgage loan.  Folks, there is no such thing as a zero cost loan.  It doesn’t exist unless you’re doing a straight interest rate reduction refinance with your same lender, going through that lender’s loan servicing department and I think it’s even rare that that would happen nowadays with so many banks and lenders immediately selling everything to Fannie Mae or Freddie Mac.  Mortgage loans will always have fees and costs involved.  Some of those fees will be to the bank funding the loan, other fees will benefit the loan originator helping you, and still more fees will go to third parties.  Any company that tries to sell you a “no fee” mortgage loan is lying to you. The fees ARE being charged….they’re just being covered by a higher rate or they’re not telling you about the other third party fees that you’ll pay at closing unless you decide to read the fine print. 

So the opening call-to-action phrase on the Cash Call home page is a lie, the radio ads are deceptive and their loan originators are sub-par. I’m sure they’ll make several billion dollars this year, pay a very small percentage of their profits in regulatory fines, and keep on using the radio to find more rate shoppers.  It’s a business model that works. Expect more copycats.

Tips for Seattle International Film Festival First Time Attendees

I’ve been attending the Seattle International Film Festival for several years and was introduced to the event by two of my Realtor friends, Kyoko Matsumoto Wright (who worked on the original festival when she was a UW School of Drama student many years ago) and Ron Crider. Instead of telling you all the cool things about the festival this year, like Ewan McGregor coming to town, a better idea for curious first timers is to spend time reading the SIFF Guide. After that, you’ll be ready for some first timer festival attendees tips on how to jump in and have fun. For 2011, SIFF runs from May 19-June 12.

1) Some people harbor a secret fantasy of cancelling all business appointments and watching as many films as possible from morning to midnight during the festival.  Unless your name is Tom Tangney, you’re independently wealthy, or you are an uber film nerd, most of us have other obligations during festival time. Lucky for us, many of the movies are shown more than once, at different times of the day, and in different locations beyond just Seattle.  So my first tip is to go through the SIFF guide and make a list of the movies you want to see by day/time option as it fits with your calendar.

2) Second step is to compare your “must see” films with your film buddy.  I’ve been attending films with my nephews and daughters and sometimes what we want to see matches up perfectly and other times, not so much.  Josh really wanted to see Robo Geisha last year but I passed so he went by himself and he said the place was absolutely packed and the movie was a riot.  Together we saw Ticked off Trannies with Knives which was hilarious. Josh and I place high priority on all zombie movies followed closely by anything in the horror genre.  Miranda and I lean toward the kewl teen films (e.g.; Let the Right One In.) When my girls were  younger we saw the family-friendly films.  Ron Crider and I typically go for the psychological thrillers followed closesly by the gratuitous sex and violence genre and Kyoko and I might end up seeing an intense drama. There are plenty of people who are by themselves so don’t let a lack of a movie buddy stop you from going. 

2) Arrive early. Arrive early. Arrive early.  If you have a buddy, one person can save a place in line while the other person is parking.  Lines form fast and they’re long.  Bring a book to read while you’re in line and an umbrella and dress in layers just in case. There will be separate lines for pass holders and ticket holders.  If you’re not an overfunctioning planner, which is a personality trait that tends to run in my family, you might do just fine with spur of the moment decisions but then be prepared to be let down if your first choice is sold out.

3) I highly recommend buying your tickets online at home ahead of time.  You exchange your paid receipt for a ticket when you arrive at the theater. Find the SIFF volunteers right inside the theater. If you’ve purchased, say, tickets for 7 shows online and head out to see the first one, the SIFF volunteer will print out your tickets for all 7 shows at that first show. 

4) Be open to seeing films with subtitles. Last year, the very best film of the festival, IMO was Cell 211, which won Spain’s version of their Oscar awards for “Best Picture.” I love films with moral dilemmas and this film asked us to ponder the question, “Is it ever okay to lie and under what circumstances?”  This film has not yet been released in the U.S. in a format that would play on our DVD players and as soon as it does make it to the U.S., I’ll definitely be buying several copies. Aside from Inception, Cell 211 was the best film I saw last year.

5) Watch your budget and remember costs can add up. Parking, coffee or a meal before/after the film, snacks, gas money, can destroy a tight budget so do what you usually do to save money at the movies.

6) Many filmmakers are at the festival promoting their films and/or looking for a distributor so people from the film will sometimes be in attendance. Actors, producers, directors, have all been known to be there to introduce their film and even stay after the film is over to answer audience questions.  I’ll never forget seeing Josh collect an autograph from Rachel Dratch. He levitated for the rest of the day. We’ve been in the audience with Paul Giammatti, Edward Norton, Gus Van Sant in recent years.

7)  Plan ahead for 2012 and buy ticket packages in advance, right around Dec or Jan, at a discount.

What’s on my list this year?  

The First Grader looks fantastic.
Miranda July’s The Future
John Carpenter’s The Ward
Josh and I will definitely take in The Intruder and The Darkest Matter.
and I think Miran will want to see Beginners w/Ewan McGregor and Detention.
I’ll probably see at least 10 more in addition to these.

All the SIFF volunteers are typically identifiable by their tshirts or badges. Have fun and I’ll see you at SIFF!

Loan Originators Who Argue That Predatory Lending was Bad Should Welcome the New FRB Rule on LO Compensation Prohibitions

funny pictures-Bad Idea: Agreeing to play a game of Monopoly with Basement Cat for your eternal soul.Under the final Federal Reserve Board’s loan originator (LO) compensation rule, effective April 1, 2011, an LO may not receive compensation based on the interest rate or loan terms. This will prevent LOs from increasing their own compensation by raising the consumers’ rate. LOs can continue to receive compensation based on a percentage of the loan amount and consumers can continue to select a loan where loan costs are paid for via a higher rate. The final rule prohibits an LO who receives compensation directly from the consumer from also receiving compensation from the lender or another party.

The final rule also prohibits LOs from steering a consumer to accept a mortgage loan that is not in the consumer’s interest in order to increase the LO’s compensation.

Though a lawsuit has been filed to stop the changes from going into effect, there has been legal research conducted by the FRB over the course of many years.

The FRB’s research found that consumers do not understand the various ways LOs can be compensated such as yield spread premiums (YSPs), overages, and so forth, so they cannot effectively negotiate their fees. Yes, some LOs spend many hours educating their borrowers but this is not true for all LOs.

YSPs and overages create a conflict of interest between the loan originator and consumer. For consumers to be able to make an educated choice, they would have to know the lowest rate the creditor would have accepted, and determine that the offered rate is higher than the lowest rate available. The consumer also would need to understand the dollar amount of the YSP to figure out what portion will be applied as a credit against their loan fees and what portion is being kept by the LO as additional compensation. Currently, mortgage broker LOs must do this, but LOs who work for non-depository lenders or depository banks are not required to disclose their overage.

LOs argue that consumers ought to read their loan docs and take personal responsibility for negotiating a good deal on their mortgage yet facts related to LO compensation are hidden from consumers when working with depository banks and non-depository lenders.

The FRB’s experience with consumer testing showed that mortgage disclosures are inadequate for the average random consumer to be able to understand the complex mechanisms of YSPs when working with mortgage broker LOs. Consumers in these tests did not understand YSPs and how they create an incentive for loan originators to increase their compensation.

For example, an LO may charge the consumer an LO fee but this may lead the consumer to believe that the LO will act in the best interest of the consumer. The FRB says: 

“This may lead reasonable consumers erroneously to believe that loan originators are working on their behalf, and are under a legal or ethical obligation to help them obtain the most favorable loan terms and conditions.”

Consumers may regard loan originators as ‘‘trusted advisors’’ or ‘‘hired experts,’’ and consequently rely on originator’s advice. Consumers who regard loan originators in this manner are far less likely to shop or negotiate to assure themselves that they are being offered competitive mortgage terms. Even for consumers who shop, the lack of transparency in originator compensation arrangements makes it unlikely that consumers will avoid yield spread premiums that unnecessarily increase the cost of their loan.

Consumers generally lack expertise in complex mortgage transactions because they engage in such mortgage transactions infrequently. Their reliance on loan originators is reasonable in light of originators’ greater experience and professional training in the area, the belief that originators are working on their behalf, and the apparent ineffectiveness of disclosures to dispel that belief.

The FRB believes that where loan originators have the capacity to control their own compensation based on the terms or conditions offered to consumers, the incentive to provide consumers with a higher interest rate or other less favorable terms exists. When this unfair practice occurs, it results in direct economic harm to consumers whether the loan originator is a mortgage broker or employed as a loan officer for a bank, credit union, or community bank.

Loan Originator, Mortgage Broker, and Consumer Loan License Numbers for Jan 2011

If anyone is curious to see the number of licensed loan originators, mortgage brokers, and consumer loan companies now that we’re finished with the licensing process for 2010 (LOs all have a deadline of 12/31 every year) Washington State DFI provides these numbers for us in a downloadable excel file here. As of Jan 20, 2011 here’s how the numbers look:

WA State Licensed Loan Originators: 5,661.
This number includes loan originators who work for a mortgage broker. This group of LOs has been licensed since 2007 and their numbers dropped dramatically following the meltdown from a high of around 14,000 in 2008.  The 5661 total also includes loan originators who work for a consumer loan company. 2010 was the first year they were required to be licensed. Consumer loan lenders sometimes refer to themselves as “mortgage bankers” or “correspondent lenders.” Consumer loan companies sometimes have a mortgage banking division but these firms are very different from a traditional retail bank in that they do not offer checking and savings. I like to refer to them as “non-depository lenders.”  Consumer loan companies have the ability to fund their own loans through various lines of credit and that’s why our state requires these companies to be licensed under the Consumer Loan Act. Mortgage Brokers are licensed under our state’s Mortgage Broker Practices Act.

Mortgage Broker main and branch offices: 498

Consumer Loan Company main and branch offices: 1566

Loan originators who work under a mortgage broker or consumer loan company are called “mortgage loan originators.”  LOs who work at a retail depository bank will be referred to as “registered loan originators” as they do not have to pass a national or state competency test or take the required pre-licensing or continuing education mandated under the federal SAFE Mortgage Licensing Act. Bank loan originators begin their registration process this year.  In WA State, mortgage broker and non-depository lender LOs must hold an active LO license in order to originate; there are no exceptions, not even for just one loan.

There are plenty of loan originators who were not able to pass the national loan originator exam for various reasons and LOs who will not be able to hold an LO license (see page 2 of this pdf.)  Real estate brokers and consumers ought consider performing a due diligence check on the licensing status of their loan originators through the Nationwide Mortgage Licensing System. Why? Well many local Realtors know their favorite, local loan originator. However, sometimes consumers select a loan originator by what company is offering the lowest rates or lowest fees, which is the absolute worst way to select a loan originator but it happens typically when a consumer chooses a lender via a deceptive banner ad off a website and ends up at Lending Tree or Quicken or some other out of state lender (by the way I get more phone calls and emails from consumers who had a horrible experience at those two web lenders than anywhere else.) If a loan originator is located out of state and the company is a mortgage broker or non-depository lender, he/she still must hold a WA State LO license if conducting business in this state.

We have LOs who are located all over the U.S. that HAVE been properly licensed. Did you know there are 497 LO’s licensed in WA state located in California?  Did you know that WA State has issued LO licenses to 149 people in Florida, also known as the mortgage fraud headquarters of the world, 280 in Michigan (whaaa?), 197 in Pennsylvania, and 102 in Texas. 

Out of the 5661 licensed LOs in WA State, only 2967 are located here.  The rest are out of state. Surely we’ll have some folks licensed in multiple states who are living in Idaho, Oregon, and Alaska. I was still amazed at how many are from other parts of the U.S. and why a consumer would select a person located out of state.  Maybe one of our RainCityGuide readers can enlighten us.

New Predatory Scam: Mortgage Litigation Services

The subprime lending industry barfed out hundreds if not thousands of loan originators in 2008 who had a taste of the six figure lifestyle and didn’t want it to end. The predators quickly swarmed into the loan modification industry and when state regulators started clamping down, they morphed into predatory short sale negotiators like parasites steadily evolving to bypass an organism’s defenses.

halo 3 plasma pistolSo where might they go now that the Federal Trade Commission is using the Halo plasma pistol on upfront fees Jan 31, 2011? Do you think they might crawl under a rock and die? Of course not.  The newest scam is called “mortgage litigation services” and the scammers are already swarming my inbox with email spam telling me that I can make six figures a year with no experience. All I have to do is refer people to their company. So what is the new scam?  From their email marketing:

“This is not a loan modification. Mortgages can become free and clear! XYZ Legal Services has put together a turnkey system that allows you to start offering mortgage litigation to your clients in days. This turnkey system is designed to run side-by-side with your existing company. XYZ provides all the required backend services to support your sales operation and business objectives. Our focus is on providing the very best customer service and attorney services for your customers. I am very confident that we will be able to help you and I think you will quickly see why our customers find our attorneys to be the experts when it comes to helping them get their financial issues resolved. Here are just a few key components that separate XYZ from the competition:·
Provide a REAL service to homeowners
You collect NO paperwork
All you do is fill out a one-page form online
Highest Marketing Fees to Affiliates
Make a Huge Income by Helping Others

Someone with a law license please explain to raincityguide readers how this could be legal.  It looks like they want people to sign up to become an affiliate and send referrals to their company, and for that the company is going to send out a referral fee. Predators love scams where they do no work and collect a fee.  So if these ads are targeting loan originators and other people in the real estate and mortgage lending industry, it looks like the company wants referrals of consumers who are in a position to challenge their lender.

We already have a 2009 law in Washington State where the lender is required to prove they hold the note before foreclosing. I don’t see how this service can help struggling homeowners. I do see how people who will believe anything will once again be scammed out of an upfront fee before any work is performed.

Loan Originator Feels Entitled to Overage and Asks for Jillayne’s Advice

This is a good representation of the emails and blog comments I receive daily over at the NAMF website on the topic of loan originator compensation:

Dear Jillayne, I read your article because I am trying to determine when the loan originator compensation limits will go into effect and what I’m going to do if this acutally happens. As an LO for 10 years, I take great pride in being a member of the lending industry and in my opinion, I have provided an invaluable service to my customers over that period.  I will also admit to having earned the ocassional “overage” in a transaction.  I did not price my loans to make overage, however if the par price paid less than 1% (as often happened because of the rate sheet) I felt I was entitled to do it.

I do take issue with you on the amount of work that an LO does to earn their compensation, a competent LO not only takes the 1003 loan application, I take an appropriate amount of time on the front end of the transaction to thoroughly explain the loan process. I tell customers exactly what they can anticipate.  I then take a complete application and discuss what documentation will be required and why. I spend at least 2 hours reviewing every disclosure, state and federal, that they are signing.  I then collect all documentation, prepare the loan package, sort the package to a stacking order, order title, order appraisal, register the loan and submit to processing.  I get the conditions which I discuss with the processor, and then collect the conditions and submit for final approval.
My company has just announced that they are discontinuing payment of all overage effective January 1, 2011.  Regardless of your opinion on overage, it is a significant component of any LO’s income.  While we can debate whether it should or should not be, the fact of the matter is, it is!  The companies are not going to increase my compensation to account for that loss in income, and I find myself having to generate 50 or 75% more sources to find loans.  How would you approach that change in your income?

Dear Entitled to Overage,

We exchanged two emails in which I asked you how many hours you spend, on average per file and I also asked for your average loan amount.  E2O, you said you spend an average of 15 hours originating each loan and your average loan amount is $175,000.  Let’s do the math.  I’m going to estimate that in today’s competitive market, a loan originator would be hard pressed to get away with earning more than a 1 percent loan amount with a 1 percent overage

Let’s pause and quickly educate readers on overage income: This means marking up the wholesale interest rate and selling the consumer a higher interest rate at retail rates. The lender funding the loan, who is very happy that you’ve sold a much higher rate, rewards the loan originator by paying them a percentage of the loan amount at closing.  Mortgage broker LOs disclose ALL their compensation on line 1 of the Good Faith Estimate.  Mortgage banker LOs do not have to disclose this overage income as of today. However, two rules at the federal level will change this come April 1, 2011: The Federal Reserve Board Rule and Dodd-Frank Wall St Reform.  More on LO Compensation limits in a future blog post.

So E2O, I’m going to estimate low. Let’s say you currently feel entitled to make 2 percent of the loan amount as your fee for working 15 hours.  That’s $3500. Let’s divide $3500 by 15 hours.  That comes out to $234 per hour.  Please help me understand how a position that does not require a high school diploma is worth $234/hour?  If a person making this kind of hourly wage works a full, 40 week, that means this same person is grossing $486,720 per year.  No wonder loan origination attracted so many people who were only in it for the money.  LOs could work as little as 10 hours a week and make a comfortable living.

Let’s get back to your question. You’re saying that your company is going to take away your ability to earn the hidden “overage” income immediately and you’d like my advice on how to approach that change in income. 

First of all, I highly doubt that you’re working a full 40 hours per week.  If indeed you were actually working that hard, you’d have more business sources than you’d know what to do with so my first suggestion is to honestly reflect back on how many hours you actually spend working on the job of origination.  Subtract the hours spent going to the gym, talking sports with the guys over coffees or beers, subtract the hours spent on Mortgage Grapevine and the right wing political conspiracy blogs or Huff Po or wherever you’re currently wasting time and look at the bare bones number of hours spent talking with past clients, getting off your butt and into Realtor offices drumming up business.  My first suggestion is to work harder.  Don’t like that? Go find another job in another field that will pay you $233/hour.

Second suggestion: Ask yourself how much you love mortgage lending.  If you’re only in mortgage lending for the money ONLY, then my second suggestion is to leave the industry. That’s right, get out of mortgage lending and go do something that you really love.  Life is short (and life is long. It’s a paradox.)… life is too short to spend it in the mad, mad, mad world of mortgage lending unless you love what you’re doing so much that you wouldn’t dream of spending life any other way. This is the choice in attitude it’s going to take to get you through 2011 and beyond. 

Third suggestion: If indeed you really, truly are worth $233/hour then go ahead and charge that! Charge your clients a 2 percent loan origination fee on line 1 of the Good Faith Estimate and when they shop around and find a lower interest rate and lower loan fee, explain to your clients the reason why you are worth that amount.

Fourth suggestion: Accept that you’re not worth $233 an hour.  Why? Because if you were, you wouldn’t be asking for help.  Banning overage income is going to separate the men from the boys and the women from the girls.  Loan originators: You never were worth $233 an hour as a brand new, unexperienced loan originator.  All it takes to get a license is a 20 hour prelicensing class, passing a background check and a national and state licensing exam, and to not have any felony convictions in the past 7 years. And if an LO wants to work at a depository bank, NONE of that is required!  No loan originator is now or was ever worth $233/hour when they are first licensed.  Maybe an extremely experienced LO with, say, 25 years experience (which means they entered the industry before the subprime lending era) is worth that much.  Why? Because he/she can originate a loan IN LESS THAN 15 HOURS.  That 25 year veteran knows his/her products, knows FHA/VA/USDA, knows the FHA 203K Program which will be highly used as soon as more REOs hit the market. That 25 year veteran has seen the rise and fall of the Savings and Loan crisis, has seen many refi booms, has lived through countless underwriting guideline changes, as lived through the same amount of federal law changes, and has the experience, maturity, and knowledge to help a wide variety of clients.  This loan originator is very valuable.  A brand new LO was never worth $233/hour and one of the big mistakes company owners made was to recruite people through greed to be LOs.

Fifth suggestion: Now that you’ve accepted that no green LO is or was ever worth $233/hour reset your own worth. If it seriously takes you 15 hours to originate a loan, I’d say that you don’t know as much as you think you know (this is very common for LOs who were hired during the subprime era) or you need to learn how to work more efficiently and spend more of your time procuring new clients.  Don’t like Realtors? The majority of LOs who were birthed in subprime boiler rooms despise all Realtors because Realtors tend to hold LOs accountable.  So if you don’t like Realtors and you don’t want to work harder to procure more clients…..

E20, my sixth suggestion is to accept that your value to your company is much less than you think it is. Reset your lifestyle and spending patterns to match your worth to your company and client, or prepare to work harder and smarter in 2011 and beyond.

I suppose there’s another option. You could open your own bank or mortgage bank.  Now you get to keep the profits for yourself.  As I look around the mortgage lending industry I see many faces of company owners who started out as loan originators and worked their way up the ladder to the point where it was time to start their own company.  This is always an option for any of us…who want to work that hard.