Wednesday, September 30, 2009

Licensed to Originate

You need a license to do a lot of things. A license to drive; a license to sell insurance; a license to cut hair; a license to kill (007 reference); and a license to ill (Beastie Boys reference). In most states, my state of Arizona included, today one does not need a license to originate a mortgage loan. Now before you panic and wonder who the idiot was that did your last mortgage loan for you, a law was passed last year that requires all 50 states to license loan originators.

Whew! That is good news. You might be wondering why the loan officer you worked with that handled all of your financial information, your credit report, copies of your bank statements and tax returns, and helped you make decisions about the largest debt you will ever have in your life wasn't required to have a minimum amount of education, training, or even a criminal background check. This is probably why we had so many loan originators that did not have the borrowers' best interests at heart during the height of the housing boom.

In Arizona, starting in July of next year all loan originators must be licensed with the Department of Financial Institutions. What do originators need to do to get this license? Take 20 hours of education about various mortgage and regulatory topics, pass a test to demonstrate their knowledge, and pass a criminal background check. While this process won't guaranty a loan originator is smart, ethical, and always has their client's best interests at heart, it does help to eliminate the riff-raff. It will also eliminate loan originators who really don't know what the heck they are doing.

It is also interesting to note that only loan originators that work for a mortgage broker or mortgage banker will be getting licensed. Loan originators that work for a federally regulated bank or a credit union won't be licensed. So originators that work for Wells Fargo, Chase, Bank of America, MetLife, and others will not be licensed. Those institutions lobbied very hard to make sure they didn't have to license their employees, many of which sit in cubicles in large corporate buildings and take calls from customers all over the country. Does that mean those originators won't be as qualified as loan originators that work for mortgage brokers and mortgage bankers? No, but you can be confident that the loan originate that works locally for a mortgage banker or broker had to meet minimum education requirements, pass a test, and a background check to make sure they are qualified to help you with your mortgage loan.

I am teaching classes in Arizona for loan originators to get their education hours. I took and passed the test last night. While I don't think the test was that hard, it does take some studying, and I predict that a lot of current loan originators will either fail the test (75% needed to pass) or make a decision to find another line of work. The other option for them is to take a job with a bank.