Supporters of this movement claim that originators must be licensed because the quality of advice given to the consumer is woefully inadequate. Those supporters cite a need for background checks, testing for professional competency, and continuing education to protect the consumer against predatory lending and unsuitable loan recommendations.
Opponents of this movement,, most notably, the National Association of Mortgage Brokers (NAMB), claim that a national licensing platform is “fatally flawed” because federally-chartered banks and their subsidiaries are exempt from any regulation other than the Office of Thrift Supervision (OTS). They argue that while they support it in principle, unless the banks “level the playing field” , licensing is unfair to the independent originator.
I’m all for the national licensing, in spite of the controversy, but not for the reasons you might think.
Will national licensing reduce the number of originators out there? Sure it will. You can’t swing a dead cat without hitting an originator in Southern California today. Everybody has a business card with “mortgage” or “financial” in the company title. The consumer has never had the number of loan choices as she has today. Consumers know at least 2-3 people “in the biz” and that gives them choices. I support the effort to nationalize licensed originators because it will dramatically reduce my competition.
Will licensing protect the consumer? Everybody complains that predatory lending is driving up foreclosure rates. Foreclosure rates are well below that average (although they have significantly spiked from the historical lows of two years ago). The fact is that over 95% of the mortgagors are doing just fine. Should the consumer be denied choices and face rising costs to subsidize the fringe borrower in trouble?
Will educational standards increase the service offering to the consumer? Lending is becoming a specialized business with originators defining certain niches. The era of “generalists” is coming to an end due to the sheer magnitude of loan programs available to the originator. Successful originators are specializing in various segments of the market and that has proven helpful to the consumer. Creating a “mortgage originator” license will reward general knowledge, shift the burden of expertise back on the funding lenders, and ultimately drive up the costs of loan origination.
Licensing creates implied trust in the practitioners by the public. This is where the NAMB misses the boat. They are spending so much time fighting the “fair playing field” issue that they are missing the big picture here. They should embrace this initiative and start a public awareness campaign AGAINST the banks. I can see it now…”They all want your money…only a licensed professional can protect you from them!” Everybody hates banks; let’s make them the bad guys.
Originators have no fiduciary relationship with a customer because the customer has the right to shop credit choices. You don’t believe me? Just read the NAMB Origination Agreement. Fiduciary relationships are established when a provider and a consumer enter into an exclusive agreement. This eliminates the consumer’s ability to shop loan choices after she has committed to an originator.
Now I’m not really a cynic. I’ll support this initiative.. I can strap on the tie and suspenders and pontificate about consumer protection and raising the standards of the industry. I’ll smoke a pipe and bandy about buzzwords like “Better Choices Initiative” with the best of them. It’s easy to do when you know that the result will be less competition, less work, and higher margins under the blanket of consumer trust.
Maybe I’ll renew my NAMB membership if they get on board.Related posts: