Opinion: All Mortgage Loan Originators Should Be Qualified To Originate Loans


This week, the Consumer Financial Protection Bureau fined Bank of America $12 million for reporting false mortgage data. CFPB’s Press Release on the action stated that BofA “Loan officers routinely falsified forms about mortgage applicants.”

In response to this action, the Community Home Lenders of America issued a statement renewing its longstanding call for all mortgage loan originators to be licensed. Despite the fact that Section 1402(a)(2) of the Dodd-Frank statute requires that all mortgage loan originators must be “qualified,” the CFPB still does not require loan originators at banks to meet any of the SAFE Act requirements that apply to all non-bank mortgage loan originators.

Why is this relevant to the BofA action? The CFPB press release states that “For at least four years, hundreds of Bank of America loan officers failed to ask mortgage applicants certain demographic questions as required under federal law, and then falsely reported that the applicants had chosen not to respond.”

The SAFE Act requires all prospective non-bank loan originators to take 20 hours of pre-licensing courses and 8 hours of annual continuing education. Those courses cover legal obligations of loan originators and ethics obligations. The SAFE Act requires all non-bank loan originators to take a SAFE Act test. The test covers legal obligations of loan originators and ethics obligations.

Clearly the loophole under which bank loan originators are exempt from these basic types of requirements is not working.

When the CFPB implemented the requirement under Dodd-Frank that all loan originators must be “qualified,” it considered imposing these SAFE Act requirements on banks – but rejected doing so, claiming “The Bureau has not found evidence that consumers who obtain mortgage loans from depository institutions. . . face risks that are not adequately addressed through existing safeguards and proposed safeguards in the proposed rule.”

We now have the evidence of such consumer risk.

Who knows what other problems are taking place in the private interactions between unqualified bank loan originators and mortgage borrowers? When the Wells Fargo accounts scandal was finally uncovered by regulators, we learned that the bank opened millions of fake customer accounts and Wells Fargo was fined $3 billion.

The answer is simple. The bank mortgage loan originator loophole should be closed. Over two years ago in October 2021, CHLA wrote a letter to the CFPB, asking CFPB to use its authority under Dodd-Frank to require all loan originators to what is currently only required at non-banks – which is to: (1) complete 20 hours of pre-licensing courses, (2) pass the SAFE Act qualifications test, (3) pass an independent background check, and (4) complete 8 hours of continuing education each year.

The problems with BofA should not come as a surprise. 95% of loan originators at banks have not even taken the SAFE Act test. Remarkably, thousands of registered bank loan originators actually failed (and have never passed) the SAFE Act test. And the mortgage lenders that failed this test are not even required to disclose to their customers (borrowers) that they failed the test!

This loophole is unprecedented. Bank employees that sell insurance within the bank must pass an insurance test. Bank employees that sell securities within the bank must pass the securities test. But bank employees that originate mortgage loans within the bank are exempt from any test.

In fact, this exemption is unique across all housing and mortgage professionals. Real estate brokers, appraisers, home inspectors – they all have to pass a professional qualifications test.

The SAFE Act test is a legitimate test of whether an individual is qualified to be a mortgage loan originator; historically, around 30% of people that take the test fail it. If even as few as 10% of existing bank loan originators failed the test, it would mean there are tens of thousands of unqualified mortgage loan originators working with consumers.

Closing this loophole seems like a no-brainer. Moreover, this is not a compliance burden – since the actual cost of taking the test is around $125. It is only a compliance burden if the individual is not really capable of passing the test – and has to study to learn what they should already know.

Finally, closing this loophole would improve consumer confidence in the mortgage business – a confidence that is at risk of being eroded by the specific problems just cited at BofA and the broader accounts problems at Wells Fargo. Put simply, consumers deserve complete confidence that the person working on perhaps the most significant financial transaction of their life has high professional standards.

Scott Olson is the Executive Director of the Community Home Lenders of America, which represents small and mid-sized independent mortgage banks.