America needs licensed mortgage loan originators

The views and opinions expressed are solely those of the author.

Mortgage loan originators have not been treated in a manner consistent with their credentials and qualifications. In some extreme cases, MLOs were an unfair scapegoat for the 2008 financial crisis.

The Castration of Glass-Steagall: “A Bipartisan Mistake!”

The Glass-Steagall Act was part of the Banking Act of 1933. It placed restrictions on the activities that commercial banks and investment banks (or other securities firms) could do. It effectively separated these activities, so that the two types of business could not mix, to protect consumer money from speculative use. This included, among others, banks making risky investments with depositors' money.

Sixty-two years later, Bill Clinton's Treasury Secretary Robert Rubin joined Republican Congressman James A. Leach in introducing a repeal of Sections 20 and 32 of the Glass-Steagall Act on the basis that it was the “market reality”. addressed The partial repeal of the law in 1999 was part of a broad deregulatory push led by Federal Reserve Chairman Alan Greenspan, Sen. Phil Graham of Texas, and Rubin.

Glass-Steagall was not technically repealed in 1999, but it was effectively neutralized. Legislation was passed that year allowing bank holding companies to engage in previously prohibited business activities, such as insurance and investment banking.

The law change opened the floodgates for giant mergers, such as the $33 billion deal between JP Morgan and Chase Manhattan in September 2000. During the darkest days of the financial crisis, Bank of America acquired two companies troubled financial firms: Countrywide Financial Services and Merrill Lynch, deals that would not have been possible before 1999.

Dodd-Frank to the rescue?

Since 2008, regulatory changes in the US and abroad have supposedly mitigated this danger. The Dodd-Frank financial overhaul bill contains complicated provisions that would allow regulators to step in and take over failing banks, if necessary.

Was that the answer? Nobody really knew. In many ways, Dodd-Frank reminded me of a farmer plagued by coyote raids on his chicken coop. In the end, he came up with the perfect solution: “He would kill all his chickens, making it impossible for the coyotes to do the same.”

Barney, a former congressman from Massachusetts, was no banking expert. He was a tireless defender of gay rights. Former Connecticut Senator Christopher Dodd was arguably the most corrupt Senator on the Hill, as witnessed by his beloved mortgage deal with Countrywide Home Loans. He was forced to retire by his own party bosses!

The issue was complicated and an aggrieved America demanded an explanation. An alternative explanation had to be prepared! A bipartisan mistake, designed to enrich the big banks was the recipe for being voted out of office!

President Barack Obama found mortgage brokers an easy target. Aggressive Banks Created 2/28 & 3/27 ARM Loans With High Margins For Bad Credit Borrowers! The mortgage brokers just sold them.

As with the drafters of Dodd-Frank, Obama had no banking background. Ditto for Massachusetts Senator Elizabeth Warren, who proposed the Consumer Finance Protection Bureau. However, many listened and concluded that more regulation on mortgage brokers would be the answer. In doing so, they doomed tens of thousands of mostly family-owned small businesses.

Creation of a regulatory purgatory

The “SAFE Act” was probably the best of the post-2008 regulations. The “NMLS” assigned “unique identification numbers” to all originators. A national licensing exam was long overdue. Where it fell short was not universalizing this requirement. Originators working for charter banks, community banks and credit unions were exempt. Critics argued that if the requirement had been for all Originators, at least 20% of them would have been eliminated, due to an inability to pass the rigorous examination.

Placing a 2.75% cap on mortgage broker income looked good on paper. But in many “flying to America” ​​locations, it translated into “no longer being able to make smaller loans.” The use of “Appraisal Management Companies” as intermediaries between brokers and appraisers reflected the novice orientation of their creators. In the end, it doubled the cost of appraisal for borrowers.

Previously, correspondent lenders and their branches could “fund” loans in the bank's name. Banks liked this practice because the “direct commission, to non-profit collection clerks” resulted in huge savings, which were then passed on to borrowers.

Ironically, with the changes came a lack of transparency. Previously, the performance spread (YSP) was disclosed on the HUD settlement statement 1. Today, a borrower may never know how much they paid for the loan.

A high bar

Mortgage servicers must be “clean”. Any prior felonies or misdemeanors involving bank, real estate, securities or insurance fraud will result in industry exit visas. Continuing education is extremely intensive. The knowledge required to originate certain types of loans requires exposure to accounting. The record keeping required for a mortgage broker business is tedious. However, thanks to the disparaging insinuations of the authors of the recent regulations, MLOs are often viewed with suspicion, bordering on contempt. This paradigm is unjustified.

A Union of Originators may reveal the shaky credentials of the drafters of the regulation! A joint effort could be expanded to end the practice of Originator abuse, such as being paid AFTER a loan is sold in the secondary market. It begins by demanding remedial reforms. The right of originators to receive 1099s, with no income limit, a return to the correspondent lender model, eliminating the need for appraisal management companies, and requiring ALL originators to pass the national SAFE exam, top the list.

“Creating awareness” is the first step. Union members will receive consistent updates on legislative action. Hostile politicians and bureaucrats would be identified. Pro-industry congressmen and senators would be recognized and supported. They exist.

A good example is Kentucky 6^th District Congressman Andy Barr. A member of the House Financial Services Committee, Barr essentially grew up in her father's CPA firm in Lexington, Kentucky. In 2020, I wrote Andy a detailed letter outlining the need to lift the 1996 moratorium on the FHA 203k investor loan. Within a month, he had followed up with a letter to then-HUD Secretary Ben Carson asking for attention.

In his 2023 interview with presidential candidate Vivek Ramaswamy, Dr. Carson described the heavy-handed nature of entrenched HUD bureaucrats. “Some of these people had been there for 50 years. They were masters of the slow march.”

Originators are highly specialized financial services professionals. They typically tackle loan files that their banking counterparts consider too difficult. They serve a critical function that affects American families as much, if not more, than any area of ​​financial services.

It's time for America to recognize these underappreciated professionals.

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