As an owner of a national mortgage company, I, like many others, have seen expenses increasing drastically as a result of the many changes that the finance industry has gone through … many of which are aimed at consumer protection. What is being presented to the consumers is a safer and more transparent system; however, this is not the case.
The reality is that the system has created major issues within companies, as well as loan originators (LOs) working for brokers and lending institutions nationally that do not fall under the “bank exemption” for licensing category. What is the logic of allowing for this exemption?
The very people who created many of the programs of the past, which brokers were scrutinized for selling loans that met required guidelines, were national banks. However, the consumer is led to believe through many articles and “professional opinions” that much of this was the blame of the brokers. I will not sit here and say there was no fraud in the industry; however, regulation was lacking during that time and the programs that mortgage LOs were given by Wall Street and the national banks was where the flaws entered.
We have had good loan officers, due to the market decline and large income loss, who have had very minor personal financial issues, get denied or held up for a significant amount of time for a state license to sell mortgage loans. There is a financial responsibility code that I agree all within the industry should be held to; however, what is true financial responsibility and why are LOs who work in major banks allowed to be held to a lower standard than those working for mortgage brokers or lending institutions?
There are those who have no history of any wrongdoing in the business, but are forced into financial distress because of states taking ridiculous amounts of time reviewing and approving applications for license approvals. During this time, these LOs have no ability to originate loans, and therefore, no ability to generate income for their families. There are also cases where LOs have been denied licenses because they had to do a short sale on a home 12 months earlier, but had shown perfect credit history before and after this occurred, yet were forced to downsize and relocate their family during one of the worst financial times many of us have experienced in our lifetime. This is absolutely absurd, but the more absurd part is that LOs working within banks don’t have to do this. They do not need to take state tests nor show a level of competency that others do, but are doing the same job. They do not have to prove financial responsibility. Many of the bad apples in the industry are finding homes at your local bank, working as LOs due to their inability to pass competency tests, financial responsibility exams, or any other items required for licensed LOs who do not fall under the bank exemption.
Under the exemption rule, LOs within banks have the ability to originate loans in all 50 states. However, LOs who are required to become licensed must obtain a separate license in every state in which they want to originate. This is ludicrous and it’s very difficult for a logical person to make sense of this backwards legislation.
From a cost perspective, a bank has a fraction of the cost per LO on an annual basis, which, in and of itself, is a competitive advantage. In running a growing company, I have accepted that the smaller companies will have bigger expenses. One of my biggest concerns is the LOs who are working for the exempt organizations. I do not know how many times we have been recruiting from these exempt organizations and LOs have bankruptcies, foreclosures, terrible credit histories, and overall, have a fraction of the basic industry knowledge compared to licensed LOs because testing standards do not apply to them.
As a business owner, I must remain compliant in keeping my own individual LO license in all of the states we are licensed, in case I ever have to—in the course of the day—quote a rate. I am personally subject to the state licensing exams of all 50 states and spent a lot of time in testing centers, taking more than 15 tests over the last 10 months. I can tell you firsthand that for a competent individual in the business, these tests are not unreasonably difficult. However, most people we have hired out of banks, in our experiences, have failed these exams on the first, and even their second attempt. Individuals who came from non-exempt organizations have had a significantly easier time passing these exams which, in my opinion, means they are better-trained, and better-versed in the industry as a whole than bank-exempt LOs. Why is this and why are LOs who are all doing the same thing being held to different standards? Again … there is no logical reason.
What does this all mean? LOs who have credit issues are clearly staying at large banks or exempt organizations because they could not pass the credit checks required. To add to the issue in recruiting, LOs nationwide have continued to see the recruiting tactics of many of these institutions who are using this as a tool telling LOs they do not need to comply and pass exams. Sounds like a great system that has been put in place to clean up the industry!
The job ads for the banks should read:
“Now hiring … crooked, fraudulent LOs, who have horrible credit and would like to hide behind a banking license exemption because they are not smart enough to pass the exam nor feel they would pass the screening any other LO in the country is required to pass outside of a bank.”
The system that is currently in place is not played on an even playing field, and I would personally be very nervous doing business with one of these exempt organizations, including the major banks, to get a loan. There is a good chance that the person on the other side of the phone or counter who is helping a consumer make one of the biggest decisions in their life is one of these people.
Joshua K. Erskine is co-founder and president of CalCon Mutual Mortgage Corporation. CalCon is licensed in approximately 20 states nationwide, with physical locations in nine states and main offices in San Diego and New York, N.Y. Joshua concentrates on the development of the origination and servicing platform for CalCon in commercial, residential conforming and non-conforming loans, as well as high-end multi-million dollar residential, condo-hotel and residential construction. He may be reached by phone at (888) 488-3807 or e-mail [email protected]