The non-bank segment of the mortgage industry faces obstacles from licensing requirements that need to be worked out. Luckily, there's some legislation to fix the problem.
Eight years have passed since the adoption of the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act, and the mortgage loan officer (MLO) licensing system has become fully integrated into the industry. Some 408,000 licenses are active on the Nationwide Mortgage Licensing System and Registry (NMLS) and 80,000 more licensing exams were administered in 2015 alone. [paragraph] Today independent mortgage bankers have built their corporate onboarding and training policies around the new licensing regime. [paragraph] Yet, for many seeking to become a loan officer at one of these non-banks, the process still has some kinks that need to be worked out. I can speak of this from firsthand experience. A few years back, shortly after graduating from college, I decided to enter the mortgage industry and embark upon the NMLS licensing process myself. [paragraph] At the time, the industry was nearly as new to the process as I was. However, even eight years later, the system continues to create significant obstacles for those seeking to make the leap from a depository institution, returning to a non-bank after time away or entering the industry for the first time. As a result, the non-bank segment of the industry continues to miss out on opportunities to secure the best talent.
Transitioning from bank to non-bank
As independent mortgage bankers continue to gain market share and MLO turnover rates remain sky-high, more bank MLOs than ever are considering making the leap to a non-bank.
The reasons cited vary considerably--the new company may offer an opportunity to make a greater commission, better career prospects, quicker closings or more diverse product offerings. In other cases, the MLO is simply looking for a culture change.
Whatever the case, loan officers are not staying put. Currently, MLOs seeking to make the move have one of two options: they can attempt to complete their NMLS licensure while still employed at their depository institution (also known as a de nouo inactive license) or they can wait to begin the entire process once they are fully employed by their new company. Each of these methods has significant flaws that make completing the job switch far more burdensome.
Those who choose to complete their pre-licensure education, take the NMLS exam and submit an application for licensure while still employed at the bank, will find the process costlier and riskier than it needs to be.
Currently, only 29 states will even allow individuals to obtain a de nouo inactive license without the actual sponsorship of the employer. Even if the individual seeks licensure in one of the states that allows it, in many cases the NMLS application process is not shielded--meaning that a bank can monitor when one of its employees submits an application. Knowing that the MLO is on his or her way out the door, the bank may immediately terminate the MLO's employment.
In states that do not allow for a de nouo inactive license, the aspiring licensee would likely have to pay for his or her own surety bond at the time the license application is submitted--a cost many MLOs cannot afford. Clearly, this creates a barrier to MLOs moving from bank to non-bank.
Those who choose to wait to apply for licensure until formally securing employment with a new independent lender face different but equally problematic obstacles...