Extensive changes in the mortgage industry over the past four years have caused a fundamental challenge for mortgage loan originators (MLOs) and the institutions that hire them. While MLOs are now required to have a higher degree of competence with regards to understanding compliance and liability, recent Dodd-Frank Act compensation rules are resulting in decreasing average pay.
The new world requires that MLOs have a strong understanding of the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), the Home Valuation Code of Conduct (HVCC), the revised Good Faith Estimate (GFE), the Mortgage Disclosure Improvement Act (MDIA), the Dodd-Frank Act, a myriad of changes to Federal Housing Administration (FHA) guidelines and more. Many of these changes are critical to reforming the industry, but at the same time, have a significant impact on what is demanded of the employee. The 2011 MLO sitting in the same seat as the 2006 MLO has to be a far different, much more knowledgeable employee.
Meanwhile, the 2011 MLO now participates in a very different compensation structure where the average pay is generally lower. At the end of the day, this means that jobseekers will likely be newer and less-experienced people willing to challenge themselves within the new pay structure.
What are the impacts of these trends on employers and employees? How will brokers hire top producers and how will would-be top producers find their institutions? And finally, what does all of this have to do with education?
What does this mean for employers?
The key employer impacts of the last few years are that compensation adjustments, stricter regulations and revised licensing requirements necessarily alter the hiring pool and hiring strategies. Because new compensation schemes mean lower average MLO pay, and given that this compensation change is specific to one industry, experienced MLOs and candidates will inevitably explore other opportunities. The result is that your applicant pool will be less experienced than the previous pool of applicants.
At the same time, the result of stricter and more complex regulation is that MLOs need more knowledge than before. Even for experienced MLOs, keeping up with the number of legislative changes in the industry requires solid training. From a discussion at the Conference of State Banking Supervisors (CSBS) Annual Meeting earlier this year, audits are projected to increase due to the implementation of streamlined call reports information, a reduced pool of licensed entities and more proactive regulators. In short, the risks of having untrained MLOs have increased.
SAFE Act licensing requirements have addressed these challenges somewhat with education requirements; however, these requirements present another challenge. An unlicensed employee cannot produce immediately, and each national exam failure costs another month of production.
We hear from many employers that, as a general solution to the above challenges, they only hire pre-licensed employees, a trend reflected on job boards as well. This strategy reflects the assumptions that there will continue to be an adequate supply of pre-licensed applicants and that the burden of licensing can be shifted to jobseekers.
Given the high cost of licensing and a relatively fixed number of pre-licensed candidates, an employer cannot rely on such a hiring strategy for the long-term, especially when there are sudden upticks in certain products or when the housing market eventually improves. Inevitably, companies will have to commit to bringing on new, less-experienced and unlicensed hires.
A hiring strategy that includes candidates new to the industry requires some way to get new hires up to speed quickly. To protect the organization from risk and maximize production, training becomes a critical part of the hiring and boarding process. The education required by the SAFE Act is critical, but companies should also consider additional training, whether it be inside or outside of the firm.
What are the impacts on jobseekers?
Entrance into the mortgage industry is now more challenging. As mentioned above, many employers tell us, and advertise publicly, that they will only consider hiring experienced MLOs who are already licensed. For a new MLO, outside of working for an exempt institution, possible solutions include investing upfront time and money to launch your new career or finding a company who will sponsor you.
Ideally, interviewers want to hire a candidate who is already licensed; however, take a step back and consider what an interviewer is looking for and why. The first thing a company wants to know is the same as always—how much can you increase bottom line production? The qualifications for that part of the job are still the same and are critical to demonstrate; however, there are also two new challenges.
First, companies want an employee who can start quickly. No matter how promising a jobseeker seems, if the candidate joins a company and fails the test three times, causing a nine-month delay in licensing, how much can the employee help with bottom line production? Even a one month delay costs money.
The second aspect a company wants to know is whether you will increase their potential liability. The worst nightmare of any employer is an employee who brings down the company. This example may seem extreme (though it has happened), but the point is clear—an MLO needs to have the knowledge, capability and awareness to manage the origination process effectively and correctly. Production won’t counterbalance risking regulatory action or even having bumps in the auditing process.
One alternative to paying for licensing upfront, but a cheaper way of getting a foot in the door and making yourself more attractive to an employer is to take the test. You don’t need to pay licensing fees or even take the education to test. Taking the national exam costs $92, and a great deal of elbow grease in preparing and coming up to speed on the industry, but can provide a valuable job-seeking tool while saving you the cost of fully licensing. You will demonstrate more knowledge of the field and make licensing prospects easier in the eyes of the employer. Remember, of course, that in order to pass, you need solid preparation and education.
To go one step further, if you really bear down on the test, you can show the interviewer your score. It’s definitely a statement if you pass with a 90 percent as opposed to a 75 percent. Of course there are a lot of important aspects to this business that are not covered in the national exam, but compliance knowledge reduces employer risk, which is definitely a plus in the process.
If you want to go another step, training in sales and other aspects of the business is beneficial, but the point of taking the national exam is that it is inexpensive, it benefits the employer and it gives you an organized start for knowledge in interviews and in the start of your career. An optimal employee is one who quickly starts contributing to the bottom line with minimal risk of liability.
In summary …
Whether we like it or not, the myriad new rules of the past four years are here to stay, and even more legislation and regulatory changes are on the horizon. Those who adapt quickly to the shifting regulatory landscape will have a leg up in the next business cycle. Rather than viewing the new requirements for testing and coursework as a painful exercise needed only for SAFE Act compliance, employers and mortgage professionals need to look at it as a critical component of their overall preparation for growth in the industry. Education is one clear solution both for loss mitigation and MLO preparedness, as well as the prevention of production delays.
Tycho Rosenfeld is president and chief executive officer of MortgageEducation.com. During his three-year tenure with the company, Tycho has grown MortgageEducation.com into a nationwide provider of all SAFE core and state-specific required pre-licensure and continuing education. Prior to his current position, Rosenfeld spent nine years in finance at Bank of America and formerly worked as a financial services consultant for Accenture. He holds an MBA in Finance from the University of Chicago Booth School of Business. He may be reached by e-mail at [email protected]