by Jillayne Schlicke
If you want to become an originator, but aren’t sure where to start, read on. This is the first in a series of articles on the steps needed to become an originator. The steps and requirements, however, differ based on the type of institution you work for, so it’s extremely helpful if you understand the difference between originating for a depository bank versus a non-bank mortgage lender.
The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) was passed to enhance consumer protection and reduce fraud through setting minimum standards for licensing and registration of mortgage loan originators (LOs.) The Dodd Frank Act of 2010 elevated the educational standards for depository bank loan originators, who must now attend pre-licensing and continuing education equivalent to that of a licensed LO.
The SAFE Act also requires all LOs to submit fingerprints to the Nationwide Mortgage Licensing System (NMLS) for submission to the FBI for a criminal background check, and an independent credit report.
All residential loan originators, no matter where they work—Depository bank, credit union, non-bank mortgage lenders, mortgage brokers, finance companies and so forth—should be easily found within the searchable public facing version of the NMLS by name or license number.
Depository bank LOs are “registered” with the NMLS, and non-bank lender and mortgage broker LOs are “licensed” individually by state within the NMLS.
By way of federal law, the definition of loan origination is the same no matter where you work. However, states can make their laws tougher than federal law. Each loan originator ought familiarize himself or herself as to the state definition of “loan originator,” especially if he or she is licensed in more than one state.
Whether you want to work for a bank, non-bank lender, or mortgage broker, the definition of a loan originator is the same. According to SAFE, it is an individual who, for compensation or gain or in the expectation of compensation or gain, takes a residential mortgage loan application, or offers or negotiates terms of a residential mortgage loan. This does not include: an individual engaged solely as a loan processor or underwriter except as otherwise provided in state law; a person or entity that only performs real estate brokerage activities and is licensed or registered in accordance with [State] law, unless the person or entity is compensated by a lender, a mortgage broker, or other mortgage loan originator or by any agent of such lender, mortgage broker, or other mortgage loan originator; and does not include a person or entity solely involved in extensions of credit relating to timeshare plans.
Training and education
Depository banks are required to train their employees. People who are brand new to the mortgage lending industry will receive superior training at most depository banks. However, banks are terrible at managing a residential mortgage lending pipeline. Banks highly value their bank customers above all else. When rates drop and bank customers refinance, processing and underwriting will prioritize bank customers to the detriment of sale transactions. Banks are notorious for taking too many loan applications during a refi boom and production can’t handle the backlog, which leads to loans not closing on time and unhappy Realtors.
Non-bank mortgage lenders are where the experienced bank loan originators go, so they can report to managers who know what they’re doing. Non-bank lenders focus solely on residential lending. The path to long-term success in residential lending is paved with happy Realtors whose loans close on or before the date on the purchase and sales agreement and not one day later. If you don’t enjoy making Realtors happy, just shut down your mortgage company now and save yourself an ulcer, high blood pressure, high cholesterol, an addiction problem and another divorce.
Non-bank mortgage lenders do not have time to properly train you. I take that back. They have resources and motivation to give LOs sales training and maybe a mandatory “this is how we do things at our company” all-day, mandatory compliance class, but that’s it. If you’re brand new, everything else you’re going to learn about how to put loans together will be taught to you by your processor. Branch managers no longer have time to properly supervise and coach LOs. In 2018, the trend is for you, the LO, to pay a coach to tell you what to do every day because the branch manager is busy building a team and producing.
Mortgage brokers will rarely hire someone who is brand new because their companies are run on an even lower budget than non-bank lenders and they typically employ no compliance personnel and tend to only hire very experienced loan originators.
Based on The SAFE Mortgage Licensing Act of 2008 and other subsequent laws and rules passed after 2008, registered loan originators at a bank and licensed loan originators at a non-bank lender or mortgage broker receive similar training and education at the beginning of their career as an LO. But only licensed LOs must pass a brutal competency exam before obtaining their license. People who can’t pass the licensing exam for many reasons that will be covered in a future article, often end up working at a depository bank.
Rarely do experienced, successful LOs move from a non-bank lender back to a bank, but that’s changing with the 2018 Dodd Frank compliance reform: Smaller depository banks are planning on opening up mortgage divisions. If you are a licensed LO considering a change to a depository bank, I highly recommend that you keep your loan originator license by taking the CE class and paying the annual licensing fee every year. While employed at a depository bank, your license becomes “inactive.” When you decide to leave that bank and accept a position at a non-bank lender or mortgage broker, which you will, it will then be very easy to just “activate” the license. If you let your license lapse, you may or may not be required to re-take the national loan originator exam depending on several factors specific to you. Check with your state regulator or the NMLS for help answering this question.
Jillayne Schlicke, M.A., researches, writes, and instructs pre-licensing and continuing education courses for the mortgage industry as the owner of CE Forward, Inc. Jillayne also provides consulting services in the areas of compliance, mortgage lending law, mortgage fraud, ethics, and communications. Jillayne will be the keynote speaker on September 18, 2018 at the Spokane Mortgage Lenders Association dinner meeting.