How are banks handling new loan officer screening/training requirements?
If you're a depository, how have you adjusted your practices to comply with the new requirements for screening loan officers and providing ongoing training? Here are some thoughts on what the new rules require.
Effective this past January (as part of the Federal LO Comp. Rule) there are new requirements relating to standards imposed on registered loan officers employed by banks. This does not affect brokers or mortgage bankers (or participating in NMLS), who must participate in the NMLS already whose loan officers must be licensed. The 2014 Rule still does not require banks to participate in the NMLS (as many argue for), but instead it essentially requires banks to do the same thing in-house - to develop its own procedures for screening loan officers and providing them with ongoing training.
To be extra clear- these rules do not apply to "licensed" loan originators (licensed with NMLS- paid fees, background check, pass NMLS tests, complete annual CE) ... they apply to "registered" loan officers (employees of depository who have a unique identifier with NMLS but otherwise did not do all that other stuff).
Here's a little more about what the Rule requires:
Screening Requirements
The first big change are the new screening requirements, generally applicable to new hires. If you're hiring a loan officer, you'll need to go by the following steps.
Step One: Gather Information & Consider
Banks are required to gather and consider the following information to screen a potential hire:
A criminal background check
A credit report
Information about any administrative, civil, or criminal findings by any governmental entity. *Obtain this through the NMLSR if LO is registered, or otherwise just require the new recruit to provide this information to you.
"Any other information reasonably available" to the bank.
*All this means is that you can't stick your head in the sand!
What you're looking for (in the sources above or otherwise "reasonably available" to you) is information related to any of the following factors:
Acts of unfairness or dishonesty (e.g. on job applications)
Current outstanding judgments
Any disciplinary actions by regulators or licensing agencies
Tax liens
Other government liens
Nonpayment of child support
Pattern of bankruptcies
Foreclosures
Delinquent accounts
Note:
You are not required to review debts arising from medical expenses.
Step Two: Make Determination - Fit to be a loan officer?
Now the bank employee responsible for hiring the loan officer must use the above information (and must consider the 9 factors) to determine whether he/she is good enough to be a loan officer.
Specifically, the bank must determine whether the person has demonstrated (#1) financial responsibility and (#2) character and general fitness such as to warrant a determination that the individual will operate honestly, fairly, and efficiently as a loan officer.
Who fails this test?
Any person with any type of felony conviction in the past 7 years
Any person with a felony conviction ever that involves fraud, dishonesty, a breach of trust, or money laundering.
When does a candidate survive this test?
The bank finds no "significant adverse information"
Note:
The screening process is generally only for new hires (i.e., hired
after January 10, 2014) ... not existing employees. There are some exceptions, these employees must go through the screening process too:
Loan officers who were hired before there were any statutory/regulatory background standards in effect
The bank discovers--from a "reliable" source--new information that demonstrates the loan officer is unlikely to meet the current screening requirements.
Periodic Training Requirements
The new 2014 Rule also requires banks to provide periodic training to ensure loan officers "ha[ve] knowledge of State and Federal
legal requirements" relating to the loan officer's origination activities.
Some notes about this:
No formal training is specified
Loan officers do not need training on activities that they do not perform (e.g. reverse mortgages) or in areas where they "already ha[ve] the necessary knowledge and skill."
Training does not need to be NMLS-approved
Training can be performed in-house or by consultants
There is very little more said about this, but the Rule does say:
"The training must take into consideration the particular responsibilities of the individual loan originator and the nature and complexity of the mortgage loans with which the individual loan originator works. ... [It] must be sufficient in frequency, timing, duration, and content to ensure that the individual loan originator has the knowledge of State and Federal legal requirements that apply to the individual loan originator's loan origination activities."
In Conclusion
What does all of this mean? It's probably not a major change for most of our clients, who already screen candidates and provide compliance training. The biggest change may simply be just putting this down in written procedures and explaining that this is how the bank does things. That means more paperwork, but at least it shouldn't be hard to protect yourself.
Other news/thoughts/trivia:
You know, I start to think brick + mortar shops are finished ... that all consumers have access to a mobile phone and a laptop computer, and prefer internet or mobile banking- then I see stories like this and I think, No, we're not there yet.
Leave it to the House Financial Services Committee to point out that the CFPB's estimated cost of renovating its headquarters $590/square foot) is more than the Trump World Tower ($334/foot), the Bellagio Hotel and Casino ($330/foot), and the Burj Khalifa in Dubai ($450/foot).
Yesterday, the CFPB issued a rule that allows a surviving heir to take over a mortgage and be eligible for a loan mod. Director Cordray says, "Losing a loved one should not mean also losing your home. Today's interpretive rule makes it clear that when family members inherit property, they can take over the mortgage without jumping through unnecessary hoops. ... This gives heirs an opportunity to work with the lender to pay off the loan or seek a loan modification.".
The FDIC is offering a free webinar on how community banks can partner with CDFIs (specialized financial institutions that provide financial products and services to under served markets). Click here to register.
One thing we do a lot of are operational assessments ... looking at the people, processes, and products in your lending department to find inefficiencies, risks, etc. Well, you likely do similar assessments all the time ... so here's an interesting idea taken from Dan Kennedy's book, No B.S. Ruthless Management of People and Profits, (c) 2013, told in the form of a short story:
The author was working as a consultant, helping with a staffing assessment. The client wrote down job descriptions for each of his employees--from memory, not from policy manuals--ranking their top 5 tasks in terms of importance. The author then had the employees do the same for each of their individual jobs. The two lists did not match at all! ... there was obviously a discord between what management expected and what employees thought they expected. But this exercise made it easy to pinpoint these problems and fix them with training. For example, for his clerks at the cash register, the client had ranked "getting customers to sign up for the company newsletter" as their most important task. None of the clerks had listed this as his/her most important task- only two had it on their list at all!
"If I had asked my customers what they wanted, they would have said a faster horse."
- Henry Ford
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**These are our opinions. We're not authorized, or willing, to express those of others.**