Mortgage originators do not have a national licensing program and THAT has to change!
I propose that the House Financial Services Committee get cracking on legislation that would increase the minimum standards of loan originators. Here is what I think would be appropriate:
1- A minimum of a Bachelor's degree in a business discipline. If originators are going to be advising people on the largest financial decision of their life, they need to have a basic understanding of finance. Graduates of non-business disciplines can go back to college for a year to take the requisite business courses.
2- A two year practice program where an originator works under the direct supervision of a "Certified Mortgage Originator". This program is much like the one for a CPA and is long overdue. Only after originators perform slave labor will we grant them the license.
3- A 16 hour test that encompasses the financial disciplines of real estate law, taxation, financial planning, and ethics. It should be so prohibitive that only half the test-takers pass.
4- Continuing education requirements of a minimum of 16 hours each year. That sounds good.
5- A national registry of loan originators like the NASD. Why not?
There are 250,000 loan originators in this country today. This licensing should drop the number of qualified professionals by over 75%. We can expect about 50-60,000 loan originators after the licensing is enacted. This is what we can expect:
1- Consumers will feel confident that the originator has passed a rigorous licensing discipline. They will stop shopping and star trusting the "Certified Mortgage Originator' to give them the best deal. Consumers will no longer have to perform due diligence and credibility checks. Furthermore, millions of dollars will be saved on advertising. No more spam in your inbox.
2- Fees for arranging loans can skyrocket! Those high fees will prohibit consumers from refinancing their loans or taking equity out of their home. The economy will slow down and real estate prices will come back to 2001 levels- much more realistic.
3- Licensing will slow down the loan process which is great. Consumers make too many hasty decisions and use the equity in their home improperly. Now, the licensed loan originators will be required to make sure that cash borrowed against the equity in their home is suitable. Sure, Lexus and Mercedes sales will drop but the consumer will be protected from himself. Many consumers also buy homes that are far too expensive for them. Making the Certified Mortgage Originator ask the client the hard questions is good.
Do I sound a bit cynical here? I should because occupational licensing is all about making the licensees fat, rich, and lazy. Greg Swan calls it Rotarian Socialism. And, I'm all for it...I'm sick of working hard for my money.