Chopra must equalize rules for bank and nonbank originators: CHLA

The Community Home Lenders Association greeted newly confirmed Consumer Financial Protection Bureau Director Rohit Gupta by asking him to equalize licensing requirements between bank and nonbank loan officers.

Under a January 2013 CFPB rule implementing the SAFE Act, mortgage loan officers at federally insured banks only have to be registered on the Nationwide Multi-State Licensing System. Their nonbank counterparts need to pass a licensing examination.

The CFPB, as part of its discussion for that 2013 rule, did consider requiring equal treatment between the two groups, but ended up keeping the status quo in place since the SAFE Act passed in 2008.

Ting Shen/Bloomberg

In the past, CHLA has called on the federal government to change this disparity.

As part of the 2018 regulatory relief bill, transitional licensing was established for those loan officers moving from depositories to nondepositories.

In its letter that also congratulated Chopra on the Senate's confirmation, CHLA said he should move to require all loan officers, no matter who their employer is, to pass the basic SAFE Act test, pass an independent background check, complete 20 hours of pre-licensing courses and eight hours of required continuing education each year.

"Further, until the CFPB implements these basic licensing requirements, we suggest that the CFPB require consumers to receive disclosures from bank loan originators: (1) whether or not they have failed (or did not take) the SAFE Act mortgage test, (2) whether they failed (or were not subjected to) an independent background check, and (3) whether they are knowledgeable in current mortgage rules and regulations by virtue of having completed 8 hours of SAFE Act continuing education courses in the last year," the CHLA letter demands.

The organization claims "thousands of currently registered bank loan originators failed the SAFE Act test." It said that less than 5% of the approximately 400,000 bank registered loan officers and using a 10% failure rate of those that have taken the exam, "there would be more than 35,000 registered bank loan originators that fail the test if forced to take it tomorrow. Alternatively, extrapolating the historical 30% first-time failure rate of all individuals over time that have taken the SAFE Act test, this number would balloon to over 100,000 bank mortgage loan originators."

The letter also raised the Wells Fargo account scandal as another reason why bank LOs need to be licensed. "Consumers must be confident that the individuals they interact with in the mortgage loan process are knowledgeable about mortgage rules and mortgage products, that they understand their ethical obligations, and they have the character to carry out that role," it said.

(While the 2016 consent order over the sales practices expired in September, around the same time, the Office of the Comptroller of the Currency fined the bank $250 million for problems regarding mortgage loan modifications.)

Furthermore, other bank professionals must pass a test to be licensed in their field (for example, those that sell securities must pass the Series 6 or Series 7 exams) but the exemption for those in their mortgage units are not just unique among depositories but for those that work in mortgage and real estate sales in general, the letter said.

The CHLA called on Chopra to give bank loan originators 120 days to complete the SAFE Act requirements, the same as the current transitional licensing law allows for when they go to work for a nonbank. But to meet the 20 hours of pre-licensing education, bank LOs should get at least one year to comply, the letter said.