Regulations to oversee them all
The Secure and Fair Mortgage License Enforcement Act 2008 (SAFE Act) established a number of requirements that loan officers must meet to be licensed in their respective state.
Requirements for non-bank LOs include a 20-hour pre-certification course; eight hours of annual CE courses; register with the National Mortgage Licensing System; and submit fingerprints to the NMLS for a criminal background check.
Congress decided to implement stricter requirements on non-bank LOs because before 2008 “anyone on the street could be hired” as a loan officer and it was a way to improve the consumer protection, said a veteran OL.
Custodian banks, however, were not bound by all of the requirements put in place by the SAFE Act. The only overlapping requirement is that all bank LOs must be registered with the NMLS and submit their fingerprints for a background check.
John Jeha, an LO at Stonecastle Mortgage who also works as a continuing education instructor, said custodians weren’t affected as much by the SAFE Act because there was already increased oversight.
“Banks said they don’t need to do all this ongoing training and pre-licensing that we have to do as noncustodians,” Jeha said. “The custodians say they teach all of their employees this stuff anyway because they have so many regulations.”
the Office of the Comptroller of the Currency (OCC), the Federal Reserve Systemand the Federal Deposit Insurance Corporation (FDIC) supervises and regulates the activities of banks.
“These bodies impose training responsibilities in response to banks to have well-trained staff,” said a source who requested anonymity because he was not authorized to speak about banking regulations. “So it falls under normal supervision, security and soundness, and normal banking branch supervision requirements.”
A spokesperson for the Conference of State Banking Supervisors, which owns and operates the NMLS, said both parties are subject to significant oversight by federal regulators or state regulators.
“We are all professionals and it is important to always stay up to date with skills and trends,” the spokesperson said.
Up-to-date teaching aids?
Although custodians are not required by law to have their loan officers undergo pre-licensing training or recertify them annually, some custodians require their LOs to complete onboarding training and annual training modules .
The depth and quality of these training sessions differ from one lender to another and are carried out according to the needs of each bank.
Sam Elder, Mortgage Advisor at First United Bank, said the Oklahoma-based custodian requires LOs to complete training modules annually. The modules cover some mortgage-related topics, but there are also topics that relate to other facets of working in a bank.
“Here’s the thing, we learn things that don’t apply to us. On the mortgage side, there’s definitely banking, you know, your client stuff,” he said. “There are things that are very, very specific to mortgage lending, and there are things that are not at all specific or even necessarily applicable to us. You have to learn more things in a bank.
Karol Bourdet, former LO at Wells Fargo who passed to Precision Home Loans in 2020, said the custodian required training courses when first hiring an LO, then annual online training.
“The tests are mainly related to banking requirements topics and a few origination topics, i.e. HMDA, Fair Lending, etc.,” she said. “But nothing in my opinion like continuing education classes or the three-hour test for state licensing.” (Depositary LOs are not required to be licensed state by state, they can make loans in any state.)
Continuing education for non-bank LOs is more rigorous, with increased emphasis on the Truth in Lending Act, Equal Credit Opportunity Act and Real Estate Settlement Procedures Act (RESPA), said several LOs and continuing education teachers.
If a non-banking LO does not recertify their license, they are effectively cut off from the industry. Depository LOs who may have forgotten to complete their annual courses can keep their license, former and current bank loan officers said.
William Kidwell, loan officer at Smart Investments, LLC., said non-bank LOs and custodian LOs must be held to higher standards in their training.
“My mindset is that if we believe that people who provide mortgage services are working with consumers with the biggest asset that they own or are likely to have, I have to ask myself how we can get people to do that with 20 hours of education or no education,” Kidwell said.
He noted that continuing education courses for non-banking LOs do not provide the understanding needed to advise consumers on “challenging balance sheets, cost versus debt and debt service parameters”, but that in depository institutions, it can be even worse.
Kidwell also criticized an existing loophole that gives LOs switching from a custodian to a non-bank 120 days to issue loans without any pre-licensing training.
“I don’t know about everyone on the planet, but I don’t know if I would want my neurosurgeon to have 120 days to learn how to be one, just because he was a doctor somewhere a year before that,” he said. said Kidwell. .
A fair educational playground?
Loan officers making the switch from a custodian to working for an independent mortgage bank often struggle to get up to speed with all the regulatory documents, said LOs who made the leap.
According to Jeha, LOs leaving custodians and coming to the non-custodial side of the business generally don’t have as much training.
“[These LOs] don’t quite understand the rules and regulations that someone from a noncustodial company knows,” he said. “I think the non-custodials are much better at training and the rules and regulations make us more competent than the custodian LOs.”
Bourdet, a former Wells Fargo LO, said the pre-licensing test was “significantly more rigorous” than the California-based custodian’s educational materials.
“In my opinion, LOs working for custodians might be less knowledgeable about products and regulations,” she said. “I think custodians aren’t as picky about making sure they hire LOs with mortgage experience. Usually, non-banks are looking for experienced LOs with a business portfolio. »
She added that during her time at Wells Fargo, case bankers sometimes gave the client incorrect information about mortgages.
“Bankers in banks are not trained in mortgages, only in consumer credit products, i.e. equity and car loans,” Bourdet said.
In its October 2021 letter to the CFPB, the CHLA said high-profile custodian scandals — such as the Wells Fargo fake account controversy — have highlighted the risk to consumers that stems from a lack of training.
“The combination of unqualified bank mortgage originators, combined with pressure from the bank’s senior management on employees to promote profitable mortgage products
regardless of relevance, poses a clear threat to consumers,” the CHLA said.
However, a recent 26-state federal investigation that penalized more than 400 LOs for effectively cutting classes and slapping Danny Yen, the perpetrator who orchestrated EC’s fraudulent scheme, with a $75,000 fine, raises concerns. questions about the effectiveness of continuing education programs as a whole.
Calls for change
In its October 2021 letter, the CHLA called on the CFPB to close the loopholes in the LO Comp rule, which implemented parts of the SAFE Act in 2013. The trade group has been making this call since 2014.
According to the CHLA, an amendment to the SAFE Act in 2010 requires every mortgage originator, including those working in banks, to be “qualified.”
However, the trade group argued that the 2013 watchdog rule “created the one-time exemption enjoyed by bank mortgage originators from licensing [and] trial.” The CHLA also noted that the CFPB considered and then rejected requiring a bank LO to meet the same requirements as non-bank LOs.
“This rule simply requires unspecified mortgage training and a non-independent background check, both of which can be done internally by the bank,” the trade group said.
The letter added that “it is incongruous that bank employees who sell insurance or securities must be licensed and meet high qualification standards, but a mortgage LO selling mortgage products – a sector which has brought l in 2008 – is exempt from the basic requirements that apply to all other financial professions.
“There are no plans to make education requirements mandatory in all areas,” a CFPB spokesperson said.
Jeha said having uniform requirements for all LOs would help consumers “tremendously”.
“For someone on my side of the business, the noncustodial side, not only do we have to do the training, but I would say 95% of loan officers have to pay themselves,” Jeha said. “So they’re motivated to make sure they’re doing the right thing. In a depository institution. It’s like, ‘Oh, another class I have to take. It’s online. There is no live class, there is no interaction. I just have to get out of this. And then I will continue to do what I do. Standardizing it would be much better.