Until this month, virtually anyone could work in Washington as a loan officer for a mortgage broker — even convicted felons whose job gave them access to borrowers' most sensitive financial information.
But a new day has dawned, and it's mortgage brokers who pushed for the change.
A new state law, which went into effect Jan. 1, requires the state's 8,000 loan officers employed by mortgage brokers to be licensed. They write more than half of Washington's home loans.
Exempt from the new law are loan officers working for banks, credit unions and savings and loans. Also exempt are those working for consumer-finance companies.
Loan officers at mortgage brokerages must pass a background check meant to weed out those convicted of recent felonies or financially oriented misdemeanors, such as credit-card fraud. Also out are those who've generated a significant number of business-related complaints to state regulatory agencies.
All public documents, business cards and loan papers must carry the loan officer's license number.
And beginning this summer, loan officers who work for mortgage brokers also must pass a professional competency exam.
"I don't think you can guarantee that some guy who was good yesterday will be good tomorrow," said Adam Stein, chairman of the state's Mortgage Broker Commission and president of the Washington Association of Mortgage Brokers.
But the customer can have confidence they don't have a history of committing crimes and that they know what their responsibilities are, Stein said. The association pressed for the new law as a way to increase professionalism within the industry and weed out bad actors, he said.
This comes at a time when increasing attention is being paid to mortgage-practice abuses, including predatory lending, which pushes high-cost loans that put borrowers at risk of losing their homes
Loan officers who work for mortgage brokers now join numerous other real-estate-related professionals — including real-estate and insurance agents, mortgage brokers and architects — in being licensed by the state.
A mortgage broker is charged with finding the best loan available for his or her client from among a number of mortgage suppliers. Most of the state's brokerages employ fewer than 10 loan officers and may have branch offices.
Loan officers who fall under the new law also might be called loan originators, account executives or account representatives, said Chuck Cross, who until recently was director of consumer services for the Washington State Department of Financial Institutions.
Covered by the law is any mortgage-brokerage employee "who holds themselves out as able to assist someone in getting them a loan and counseling them on rates and fees," Cross explained.
That includes loan officers working for so-called "net branches," which are franchise-type offices working under the umbrella of an off-site mortgage broker.
"The net branch industry is huge," noted Stein, president of American Brokerage in Auburn. "It's where a lot of people run to. They think they can work with no oversight."
Some net-branch operators are taking the position that the new law doesn't apply to them because they're not technically loan originators.
However, Cross said, they're not exempt, and those who continue to write mortgages could face a five-year ban from the industry and thousands of dollars in fines.
Mortgage-company employees who do support work, such as loan processors, do not have to be licensed.
Washington now joins more than two dozen states — including Idaho, Nevada, Oregon and Utah — in requiring licenses for loan officers who work for mortgage brokers.
The trend is fairly new, noted Christopher Cruise, a nationally known mortgage-personnel trainer.
While bank loan officers have been highly regulated for years, mortgage-company loan officers, "have been kind of, sort of left alone," Cruise said.
"You could say, 'I'm a loan officer; I'm tired of flipping burgers,' " Cruise said. "This does raise the quality of loan officers tremendously."
It's too soon to say what effect Washington's law will have on the mortgage-broker industry. But Stein said it's clear in other states.
After Ohio implemented a licensing requirement, almost 10 percent of its loan officers were not allowed to write loans because they had been convicted of felony crimes or misdemeanors involving financial misconduct.
In Utah, 3,000 of the state's 12,000 loan officers did not pass the required state exam.
"Clearly you're removing people who either aren't ethical or aren't skilled enough to be in practice," Stein said. "What's left is the 80 to 90 percent of the people who know what they're doing."
Before the law, state regulators examined mortgage-brokers' practices only when there were indications of wrong-doing. Now they can examine them for compliance, he said.
"For the consumer, there's more diligence," Stein said.
Washington's loan officers are being issued interim licenses pending implementation of a 100-question test.
It will be based on 1,000 questions and answers, covering all aspects of loan origination, that will be available on the Department of Financial Institutions' Web site later this year.
A national loan-officer registry is expected to roll out next year. Eventually it will allow state regulators and mortgage brokers to weed out the unfit or unscrupulous who now can easily move from state to state, Stein said.
Elizabeth Rhodes:
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