There was a mass exodus in 2008 during the fall of subprime and wholesale lenders. Many people left the mortgage lending industry and now, former loan originators are re-entering the mortgage lending industry. This post will lay out the difference between working at a depository bank and a non-bank lender.
In 2008, the first national loan originator licensing law passed: The SAFE Mortgage Licensing Act and the 2010 Dodd Frank Wall Street Reform Act made some modifications to The SAFE Act.
Processors and underwriters generally do not need a loan originator license. There are some exceptions. For example, at a very small company, a processor will typically help the loan originators do things like lock a loan or quote interest rates or answer questions about loan programs. All of these things require that the person doing these things holds a loan originator license. At a large non-bank lender, the processors are typically not licensed and focus solely on processing.
An entry-level job such as a loan originator assistant might not require a license initially, but eventually if the LOA wants to take on additional responsibility or achieve a pay raise, will typically be required to hold an LO license at a non-bank lender.
If you want to become a loan originator, some companies require a license and some do not.
First, let’s look at a depository bank.
Loan originators who work at a depository bank are NOT required to obtain an LO license.
They ARE required to take an equivalent, 20 hour course and a competency exam
The course and exam is often delivered in-house by a bank employee.
They ARE required to meet the other standards of obtaining a license (see below)
Upside to a bank:
Depository banks are required to provide training.
No need to obtain an individual state license. Can typically lend money in all 50 states, if you work at a federally-chartered bank.
No need to bass the very tough competency exam.
No need to bass the very tough competency exam.
Downside to a bank:
The training and supervision has a mixed reputation.
The training and supervision has a mixed reputation.
Typically, loan originators are paid less than a non-bank lender. Why? Because your customer is walking in the door every day.
It’s a bank.
Now let’s look at a non-bank lender. This is the new name for what we use to call a mortgage company, not attached to a depository bank.
Here are some examples of large, regional, non-bank lenders: Guild Mortgage, Caliber Home Loans, Evergreen Home Loans.
Loan Originators are required to be licensed separately in each state
Education: 20 hour LO Pre-licensing course
Education: Each state may require state-specific education. Example: Washington State requires a 4 hour LO Pre-licensing course.
Education: 9 hours of LO continuing education every year
Pay the licensing fee every year
Pass a very tough competency exam called The National LO Exam with Uniform State Component
Pass a very tough competency exam called The National LO Exam with Uniform State Component
Reasons for working at a non-bank lender:
Will be offered a higher compensation
The people that run non-bank lenders focus on residential mortgage lending and know what they’re doing.
The people that run non-bank lenders focus on residential mortgage lending and know what they’re doing.
It’s not a bank
Reasons against:
Typically do not offer much training and will expect you to source your own business.
If you want to do business in multiple states, expect to pay additional education and licensing fees.
If you want to do business in multiple states, expect to pay additional education and licensing fees.
BOTH depository bank LOs and non-bank lender LOs must meet the following:
No felonies of any kind within 7 years of obtaining a license
No felony OR gross misdemeanor of any kind if the crime was in any way related to fraud or there’s a financial element to the crime. These people are permanently banned from holding an LO license and permanently banned from holding any position at any mortgage related company for life.
Must demonstrate financial responsibility. Some states have their own rules on this topic: example: multiple bankruptcies would be seen as problematic in some states. WA State has one special rule about financial responsibility: LO must not owe the IRS more than $100,000.
Full, 50-state FBI background check
Fingerprints that will go through FBI database
10 year work history becomes public record.
Here’s an example of what that looks like. This person works at depository bank.
Here’s an example of what it looks like if the person ends up with a mortgage fraud felony and is no longer able to hold a license.
The Nationwide Mortgage Licensing System is a public records, searchable database.
The Nationwide Mortgage Licensing System is a public records, searchable database.
There are other types of companies that hire LOs.
Credit Unions would generally fall under the rules for depository banks
Non-profits like Habitat for Humanity do loans but their loans are zero interest loans. Non-profits, generally are exempt from licensing.
Mortgage brokers follow the licensing rules of non-bank lenders but they rarely hire new people. If you exited the industry in 2008, just think of yourself as a new person. There are so many laws that have passed since 2008, if you can be humble enough to admit that mortgage brokers provided no compliance training during the 2000-2008 bubble, you’ll have a better mindset to welcome the new laws and understand why the laws were needed. If you’re a former subprime mortgage broker who exited the industry in 2008 (that was a long time ago) and can’t think of yourself as “brand new” then you’re going to have a tough time re-entering the business. Mortgage brokers today will not offer much in the way of help with compliance and training. The mortgage brokers that remain after the fall of subprime, are typically a small business without a lot of money to spend on a compliance and training department. They typically will only hire very experienced LOs who do not need coaching or hand-holding.
Diversity
Companies with over 50 employees within the mortgage industry are under a mandate from The Dodd Frank Act to at least attempt to/pretend to care about diversity and come up with a plan on how the company will become more diverse.
Some companies are totally on this and are very diverse, by that I mean managers and LOs are something other than a white man.
Some companies are resisting this and are mostly filled with white men in the LO and manager position and the support staff is all women.
Some companies are in the middle.
If you are a woman, a person of color, and/or bi-lingual, you are worth a lot of money to whoever hires you. You need to negotiate hard for a much bigger commission split than you think you’re worth!
If you decide to become licensed, I’m the only person who delivers the LO Pre-licensing class in a live setting in all the northwest states. I teach it once a month, typically near the beginning of every month.
Read more about the live, Loan Originator Pre-licensing class here.
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Schedule of upcoming Loan Originator Pre-licensing classes is here.
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Other questions? Email me: jillayne at CEforward dot com