What to do if you can’t pass the loan originator exam

As the only local, live course provider that offers the Loan Originator Pre-Licensing class in the greater Seattle area, I meet lots of people who are having problems passing the national loan originator exam.  This blog post will provide suggestions on how to achieve your goal, but it might not be what you want to hear, so check your ego at the door and read on.

The national loan originator exam is tough.  Statistics show that only 69% of first time test-takers pass the exam.  And the statistics drop with second time test takers. People who fail the test the first time and attempt again, only pass at a rate of 44%.

I wrote an article on why some folks are not passing the exam and you can read that article here.

The next set of suggestions are a continuation of the above article. If you have tried to pass the test and have failed a few times in a row, you need to do some soul searching and get real about what’s going on with you. The following suggestions are from teaching the pre-licensing class since 2010 and counseling many students who are going through what you’re going through.

So let’s get to it. Why is the loan originator exam so difficult for some folks?

1) You’re under an extreme amount of stress.
No, really. Not just everyday stress. You’ve got a big earthquake going on in your life:  Divorce, marriage, birth, death, you’re moving, you’re having big financial problems, health issues, you’re dog is dying, you’re in therapy, you have legal problems.  Be honest with yourself. If you have a huge ball of stress going on in your life, you’re probably not in a good state of mind to be studying for a comprehensive licensing exam.  This goes double if you have more than one stressor event going on. Engage in some self-compassion and get through what’s going on. Get back to your regular life and then revisit the test. But maybe you HAVE TO pass the test NOW.  I’ll come back to this cognitive problem later.

3) You’re a loan originator working at a bank and you gave your notice and now you HAVE TO pass the test.
AAAAHHH! Don’t do this if you can help it. This puts huge pressure on you to perform on that test.  If at all possible, keep your bank LO job, take the class and the test on your own paid vacation time. If you don’t pass the first time, then you still originate at your bank job for another month. Keep studying and try again. Bank LOs who want to move to a non-bank lender have the biggest challenge with the material that they’re the least familiar with: State licensing!  STUDY the Uniform State Licensing section of your study material. The other challenge of bank LOs is that you’ve had it drilled into your head that THIS IS THE LAW by your bank compliance person. But it never was the law. Instead, it was your bank’s policy, which might have been tougher than state or federal law.  But your bank policy will not be on the test. Bank LOs sometimes have to unlearn what they thought was law and re-learn the bare minimum federal law.

4) The way you’re studying is not working.
If you’re not passing the test, whatever you’re doing isn’t working. Do something new.  How have you been studying? By just reading? Instead of reading try something new. One of my students had success by creating flashcards for himself.  The process of creating the flashcards, writing down the question and the answer triggered something in his brain; he was more of a tactile learner and writing the Q&As on the cards helped him improve his score.  Another student was a talker.  What I mean by this is his learning style is to talk. For example, I’d be lecturing on The Truth in Lending Act.  He would raise his hand and then repeat back what was just said. Something in his brain needs him to verbalize what he’s learning in order for that info to get into long term memory.  He created a small study group at his company with other loan originator assistants. Three of them met daily at lunch and talked about a different chapter of the book every day. By making it fun and by matching his learning style with a study plan, he was able to pass the test.  Just taking a 20 hour class is not enough studying for the average person.  Most everyone will need to keep studying after the class is over.  The most common reason people fail the exam is they self-report that they studied more than they really did. You should know your preferred learning style.  You’re either a tactile learner (someone who takes lots of notes or even doodles when the teacher is lecturing) you might be an auditory learner.  Getting an audio recording of your class will really help those who are auditory. Maybe you’re visual. Getting access to your teacher’s powerpoint slides might help. Maybe you’re a combination. Then mix it up.

5) Cramming doesn’t work.
Scenario: You’re going to take the test next Friday. You set aside all next week to study. Next week comes and your busy life sucks all the study time away. It’s now Thursday and you spend all day frantically trying to cram for tomorrow’s exam. You go to bed completely exhausted, high on anxiety and fear.  Although some people perform really well under pressure, since you’re reading this article, let’s assume you’re not one of them.  Cramming does not work. So do something else.  Schedule small, manageable blocks of study time leading up to your  test date.  Study for 30 minutes, then go to the gym.  Study for 30 minutes, then go pick up your kids. Study for 30 minutes, then take the dog for a walk. Study for 30 minutes, then play some guitar. Take breaks between study time, and schedule your time block over many days leading up to your exam.

6) Exercise.
New research suggests that small bursts of exercise, followed immediately by studying time, can increase your retention.  Example: Take your dog for a 30 min walk, then come in and immediately study for 30 minutes. Do not get distracted and do other things after the walk like have lunch or get distracted by social media: 30 min of exercise followed by a small amount of studying, like an hour. Then take a break and do something else. Think “small blocks” of study time.

7) Retake the pre-licensing class.
If you’re brand new or newer to the industry, (or you were a former subprime LO, or wholesale lender rep and are re-entering the industry you need to consider yourself brand new) and didn’t pass the test, your cheapest option might be to ask your course provider if you can repeat the pre-licensing class you took at no cost. I certainly offer this as an option. But I can’t speak for all course providers.  It might be the least expensive option. Or maybe just re-take the portions of the class where you scored low.

8) Stop relying on practice quizzes
Whatever practice quizzes are out in the public domain will never be on the test. I’ve taken a look at what’s out there and many of the practice questions are out of date, especially if they’re offered for free or nearly free.  Some of the practice questions are flat out wrong. Practice quizzes can be helpful but they shouldn’t be the only thing you rely on and if you’re scoring high, it might give you a false sense that you know the material when all you really know is the answer to that question, which will never appear on the test.  Mix it up: some practice questions, some reading, some visuals, some audio, some note taking, some case studies, and so forth. Reward yourself by watching a movie about our industry. The Big Short, Glengarry Glenn Ross, or other films. Here’s a list.

9) Take a different loan originator pre-licensing class.
One of my best sources of students are people who thought that taking the pre-licensing class online would save them time and money.  Unfortunately, I get plenty of students who don’t pass the LO exam when they take the pre-licensing class online.  For whatever reason, people have a hard time retaining what’s being taught with the online version. Especially if they are new or newer to the industry.  My suggestion is to find a live, instructor-lead course located in your state. You might have to drive or even take a short flight to a bigger city in your state, but this could be the key to passing for you.  I am the only live instructor in WA State and people drive or fly in from all over to take the class from me.  FIND the Jillayne in your state. There will be at least ONE instructor in your state who has the reputation of being THE go-to person that all the mortgage companies send their people to. That instructor will have a stellar reputation. Find her/him and spend the money to go to the live class.

10) Take a job at a non-bank mortgage lender that does not require a license.
If you are brand new to the industry, a 20 hour pre-licensing class is not nearly enough time to absorb everything you need to know to pass this test. I wish I could have you in class for 2 weeks. We’d slow everything way down for brand new people. During week 2, I’d take you out with me and we’d make cold-calls on Realtor offices to show you what it takes to survive as a loan originator.  But darn it, the SAFE Mortgage Licensing Act only requires 20 hours of instruction. States can add on to this, but people won’t pay for education and attend unless it’s required. Maybe someday we’ll have you in the classroom for more than 20 hours. Until then, there’s no college degree program for the mortgage lending industry. Years ago, community colleges may have had real estate and finance tracks that would lead to an Associates degree but those programs have mostly gone away.  Our industry is very much an on-the-job training type of industry.  Some large, regional non-bank lenders have training programs for new people. I recommend searching and finding those companies in your city that will hire brand new people and place you in a position where you don’t need a loan originator license. Some of these jobs might be called: Loan Originator Assistant, Loan Processor Assistant, Marketing Assistant, and so forth. It will be an entry-level type of job with entry-level type of pay. THIS IS HOW almost all of us got our first job in the mortgage lending industry.

Nobody says when they’re a little kid, “When I grow up, I want to be a mortgage banker!” Except me, who was raised by my mortgage banker parents and was told that mortgage lending is the highest calling of all.  For the rest of the world, we tend to fall into mortgage lending via being recruited by a friend or family member, and then we fall in love with the industry.  Taking an entry level job will allow you to immerse yourself within the industry fast. Like jumping off the diving board into the deep end. The water’s cold at first and then it warms up fast.  Your learning curve is steep. But after 6 months….a year….18 months, you now know WAY MORE than you did before. Now repeat the 20 hour class and passing the test becomes an achievable goal.

No you don’t. The world will not end if you don’t pass the test. For some reason, you hold this belief. It is not true. It’s time to stop with the all or nothing thinking and reframe what’s going on.  Create a “Plan B.”  Example: If I don’t pass the LO test this time, I will…….

Take a different job at this mortgage company that does not require a license
Become an unlicensed LO assistant for a top producer
Continue to work at the job I already have until I can pass the exam
Your idea here:________________.

Having a Plan B will help take some of the stress off you, so when you enter the exam room and feel yourself getting nervous, you can repeat your Plan B to yourself. All or nothing thinking can lead to depression if you don’t achieve this high goal you’ve set for yourself.  Be compassionate toward yourself and accept that there are MANY jobs you can take at a mortgage company that don’t require a license.  They might not pay as good as you’d like. It might be a job that might seem demeaning. “An assistant? Not me!”  If your ego will not allow you to accept a lower position than a licensed loan originator, and you can’t pass the test, then you’re lying to yourself. You DO belong in a lower level position. If you can’t handle the truth, please go work in some other industry, or….see number 12)

12) Accept a loan origination job at a depository bank
Depository bank LOs do not have to pass the national LO exam and become licensed. Instead, they register within the NMLS and we call bank LOs: Registered Loan Originators (compared with LOs who work for a non-bank lender, who are called Licensed Loan originators.) A depository bank is required to provide an equivalent 20 hour class and you still must meet other conditions of The SAFE Act such as showing financial responsibility and no felony convictions within the last 7 years (no felony convictions ever, if the felony was a financial-related crime.)  The upside of taking a job at a depository bank is that you’ll get on-the-job training. YAY! The downside is that you’ll be asked to keep banker’s hours: 8AM to 5PM, and you will likely not be paid as much. But this is definitely a good option for people who are having trouble passing the national LO exam. Stay at the bank for awhile get trained. Close some loans.  Make some contacts. Go to your local Mortgage Bankers dinner meetings.  Join a committee. Soon, you will be recruited. Now that you’ve been originating for a while, you’ll be able to re-approach the national exam with a much higher chance of passing. Be sure to read my number 3) above before you quit your bank job.

I hope this gives you some suggestions and ideas for passing the national LO exam. It’s a tough exam for a reason. There is no high school diploma required to become an LO. Some states may have added this as a requirement, but it’s not required at the federal level. This means you’re helping people with the largest financial transaction of their life, and you don’t even have to have a high school diploma. This is a special level of insanity.  BUT The SAFE Mortgage Licensing Act requires that you pass a test.  The test is written at a 9th grade level. There’s nothing beyond 9th grade math on this test.  THE TEST has become the barrier to entry. At some point in the future, we’ll require a high school diploma. At some point in the future, we’ll require more than 20 hours of education and the test will be even tougher than it is right now. Origination is becoming an emerging profession and this is how it happens: by setting a barrier to entry.  There are may ways to get the experience needed to pass the test. Now go achieve your goal.

Jillayne Schlicke
Seattle, WA

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206-931-2241 or jillayne@ceforward.com