The “Federal Housing Finance and Regulatory Reform Act of 2008” is out. Here’s the PDF and here is the summary of the Dodd amendment. There’s a section inside Senator Dodd’s amendment that calls for national loan originator licensing. The first stop is page 34 where the definition of an LO is provided:
LOAN ORIGINATOR
A) IN GENERAL
The term ‘‘loan originator’’
(i) means an individual who
(I) takes a residential mortgage loan application; and
(II) offers or negotiates terms of a residential mortgage loan for compensation or gain;
(ii) does not include any individual
who is not otherwise described in clause (i) and who performs purely administrative or clerical tasks on behalf of a person who is described in any such clause; and (iii) does not include a person or entity that only performs real estate brokerage activities and is licensed or registered in accordance with applicable State law, unless the person or entity is compensated by a lender, a mortgage broker, or other loan originator or by any agent of such lender, mortgage broker, or other loan originator.(B) OTHER DEFINITIONS RELATING TO LOAN ORIGINATOR.
For purposes of this subsection, an individual ‘‘assists a consumer in obtaining or applying to obtain a residential mortgage loan’’ by, among other things, advising on loan terms (including rates, fees, other costs), preparing loan packages, or collecting information on behalf of the consumer with regard to a residential mortgage loan.
This broad definition of “loan originator” means that we’ll be licensing LOs no matter where they work: broker, banker, consumer finance company, or credit union. There will be 20 hours of required, pre-licensing education and a national test delivered by the National Mortgage Licensing System and Registry. 75% to pass.
There’s way more to this bill than Nat’l LO licensing. 387 pages more. But that’s a good start. Here’s the MBAA recap:
WASHINGTON, DC – Senator Chris Dodd (D-CT) and Senator Richard Shelby (R-AL), Chairman and Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs, today announced that the Committee passed “The Federal Housing Finance Regulatory Reform Act of 2008,
The licensing should apply to anyone who presents themselves to the consumer/borrower as a person who originates the residential loan. period. Boy oh boy…will the banks slide out of this by only having LO’s at branches be licensed? What about their mortgage centers?
Overall, I think this is a good thing. I wish they would just override all the state regs related to mortgages though. We need one set of rules. I spend way too much time keeping up with individual state licenses, testing, etc and it is becoming quite inconvenient. The states want to control licensing merely for the revenue and nothing else. We need a national license program that allows banks/brokers to originate in all 50 states under the same guidelines. If you are originating mortgages, these are the only rules that matter.
The big banks don’t want national licensing standards because it would be harder to staff their call centers with $5.00/hour monkeys to take loan apps since they actually have to be qualified and pass an exam. In Illinois, there are two licenses. One for real loan originators and the other for “loan solicitors” which is a PC way of saying telemarketer.
Russ, I totally agree…just for the sake of the consumer. They have no idea who regulates who and what laws we are governed by…and why should they? All they should have to focus on is selecting a Mortgage Professional who is going to provide them the best service and a competitive rate.
Rhonda;
The more I think about it, I think they should create a national mortgage lender license and charge say $10k per year or whatever they feel is appropriate. I also think the companies should go through some serious due diligence as well. However, if you pass it, regardless if you a broker or banker, you should be able to originate in all 50 states without being subject to state lending laws like federally chartered banks. In addition, they need to create a classification of loan originators and banks so consumers can easily identify professionals versus loan hacks.
Quality mortgage companies should be able to put some kind of nationally recognized logo (for example, being FDIC insured) that lets consumers know the company is of high quality and passed the highest level of due diligence. In addition, loan originators should have some type of recognition too such as being able to say you are CPA, Attorney, Doctor. Basically, we need a licensing board that doles out the alphabet behind our name that means something. Many LOs have CMPS, but the reality is that designation has no weight in the public.
I want some serious standards. I want very hard tests, college degree requirements, etc. If we want any kind of respect, we have to make being a loan originaotr a profession, not a some “get rich quick while working in your pajamas… and we provide the leads!” type of racket.
In regards to my comments about banks wanting to be treated differently, here’s a great news story out of San Francisco on a training video from Wachovia, a bank, that was used to train brokers how to sell pay option ARM loans to blue collar borrowers.
http://cbs5.com/local/mortgage.world.savings.2.728889.html
The Wachovia video is inside the news story on the right hand side of the page.
I’m not so sure I’m ready to toss out what state regulators do.
Take HUD for example. When was the last time any of us saw a HUD auditor in our offices checking for compliance with RESPA?
Regulation of state-licensed banks and brokers has largely been left up to…the states.
Russ, I am a strong, pro-active advocate for helping loan originators transition into professional status.
Jillayne:
My issue is that the varying state laws result in higher cost for consumers and confusion on the part of the lenders that have to follow them. We have to take multiple test, pass multiple background checks, etc. It becomes rather burdensome for those of us who have business relationships that extend beyond our hometowns. Many brokers want to be part of federally chartered banks since it allows us to originate in other states without the senseless burden of the local legislatures. National Originator licensing is a good start.
It would seem a lot easier to have a national body that supercedes state regulation in regards to mortgage origination and then collect administrative fees from the lenders – $10k, 20k or whatever annually. Dole it out evenly to the states and be done with it. These fees could pay for oversight and the states wouldn’t have to worry about it. Given the impact that mortgages have on our economy, I don’t think it is prudent to leave regulation at the state level.
Jillayne,
Thanks for the item. I am in the process of checking it out now.
This Is Great for the industry and I think that many appraisers will be behind this 100%!
I agree with Russ and think that this is a prime time for opportunity. To Russ I would say take a look at how much of the appraiser licensing is structured with both a federal and state level presents. Likewise there is much of what you are saying already in play. I also agree on the national acceptance and should also note that this issue is one that the appraisal industry shares. There is much talk by commercial appraisers for a similar type of national license. I think that it is great that there are those that are seeking to get the industry to a true professional level. Good Job!
This is a great step and I am sorry to see banks take the stance that they are but it does not surprise me.
I think that the only question I have is what does this do to seller financers “for gain
I’m going to argue that only brokers should be licensed. The only true fiduciary-type relationship that can be established is the one a mortgage broker has with a borrower.
This could be a huge plus for mortgage brokers if it is passed because we can say that we are the only ones who operate in the consumers’ best interest.
Hi Brian,
I have been arguing this same point for at least a year now, probably longer. Mortgage Brokers have been wanting a level playing field but my argument is similar to yours in that brokers can use fiduciary duties as a market advantage over loan officers who work at a bank.
There’s some case law on the books now in regards to fiduciary duties and loan originators who work for a broker.
In terms of a loan officer who works for a bank, there’s a complex foundational problem in that a loan officer would arguably be an employee and would owe duties of loyalty to his/her employer, yet also owe duties of good faith and loyalty to his/her client as a fiduciary.
When duties conflict it IS possible to rank your duties. Think about doctors or lawyers or CPAs or nurses who are employees and also owe fiduciary duties.
It IS possible for an LO at a bank to become a fiduciary, IMHO.
Hi Shane,
I was JUST thinking about you when I read this story about how Republicans are thinking about trying to kill the Cuomo/Fannie/Freddie appraisal settlement. Let me see if I can find the story. Here it is.
http://www.housingwire.com/2008/05/21/republicans-considering-challenge-to-gse-appraisal-pact/
Hi Russ,
I think we agree that a national licensing system would help businesses save money on multiple state licensing.
In terms of complying with various different state mortgage lending laws, that still must reside at the state level. I think we agree on this point, too, yes?
I believe the state regulators are doing a much better job of regulating their state licensees when compared with the federal government.
There’s simply not enough federal dollars to regulate at the hyper local level. Instead, the feds go after the big corporations and the egregious cases of mortgage fraud. The small deeds go unnoticed by the feds.
Jillayne,
Thanks for the link I am using it right now. There is a post on Appraisal Scoop right now that is talking about “Federal Housing Finance and Regulatory Reform Act of 2008″ as it addresses appraisals.
see here
http://appraisalnewsonline.typepad.com/appraisal_news_for_real_e/2008/05/fha-appraisers.html
I am typing out a comment right now! Will be linking back to this great post in the comment! Guess Great Minds Think Alike! lol
Crazy Real Estate World These Days! 🙂
Jillayne,
I watched the WorldSavings clip and was disgusted but not surprised. In LA those folks were notorious for putting folks into loans they didn’t understand or have any business getting into.
I especially liked how the training video taught originators to avoid a straightforward question about negative amortization, and then coined some Orwellian doublespeak to characterize the loans to a skeptical broker prospect.
I just don’t think national licensure solves much, and it’s potentially harmful to consumers now that some states like WA are stepping up with more stringent loan officer standards. The idea seems analogous to the nationalization of credit card regulation.
If you’ll recall, following a couple of court decisions, much of the consumer lending regulation got turned over to the feds (and banks subsequently fled to Delaware and South Dakota) and the states lost any opportunity to restrict usurious behavior. I’m sure the banks claimed that the decreased regulation made economic sense, but it’s hard to argue that consumers are better served today against abusive credit card or consumer loan practices.
What’s to say a uniform national loan officer licensing system will be any better? I certainly don’t think it would prevent the Wachovia/World Savings type behavior highlighted in the video.
This is actually good, but I think only brokers should be licensed. They will have great leverage when giving advice to their clients.
Javier, do you feel that a broker has more leverage when it comes to advice than a mortgage originator who works for a bank? I’m not seeing any difference.
“It IS possible for an LO at a bank to become a fiduciary, IMHO.”
Of course it is but in practice, it won’t work. Wall Street taught us that. If a client is best-suited for a neg-am loan, will the BofA originator refer it out?
Ceasar’s wife should be above reproach:
http://www.bloodhoundrealty.com/BloodhoundBlog/?p=314
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