Hirshfield & Kantor, LLC Luncheon Meeting

January 2007

You should be aware by now that the NYS Banking Department is requiring all Mortgage Loan Originators to undergo a background check and all are now required to meet continuing education requirements. The department expects to have the details of the procedures in place by the end of this year. As details become available, both the NYAMB and the ESMBA will be distributing the information to everyone at meetings and updates will be published in the Mortgage Press as well as posted on both Association web sites.

Hirshfield & Kantor asked me to take a few minutes to bring you up to speed as to what’s going on. The Banking Department has already proposed an amendment to the Law. It’s being presented as a housekeeping amendment. That is, dressing up the details of the Law to make implementation smoother. This could cause a new set of problems for us. Once the department’s Bill proceeds though the appropriate committees and moves to being voted on by the Assembly as well as the Senate, there will be many opportunities for additional revisions to be added to the Bill.

Will the new administration want a more restrictive Law? Will any consumer group look to take advantage of this to add their own revisions? These are just two of the concerns we have. Although we are happy with the language of the current legislation we need to continue making our presence known in Albany to prevent any changes that will hurt the mortgage industry in this State.

This Law creates a new entity in the field, The Certified Mortgage Originator. The mortgage loan originator is defined as a person that provides services to a customer of a Licensed Mortgage Banker or Registered Mortgage Broker. “Services” are defined as soliciting, negotiating, explaining or finalizing the terms of a mortgage loan.  Soliciting is further defined as discussing mortgage products with a customer, not the taking of a customer’s information or referring the customer to a mortgage originator. Simply put, any individual working with an entity that is under the jurisdiction of the NYS Banking Department that works directly with a consumer in arranging mortgage financing will be considered to be a mortgage originator and therefore be required to become certified by the Department. Support personnel, such as processors, are not considered to be originators. Telemarketers that simply take information are not considered to be originators. Managers who don’t deal directly with the public or owners of the company that don’t deal with the public are also not considered to be originators.

A mortgage loan originator will need to apply to the Department in order to become certified. The Department shall confirm that the individual has the general character as such to warrant the belief that the applicant will engage in mortgage loan originating honestly, fairly, and efficiently. A criminal background check will be done on the applicant by the Department prior to a certification being issued. This is the same standard of character that a mortgage banker or broker now needs to meet. The yet-to-be determined cost for the Department’s investigation shall be paid for by the applicant. Once the certification is issued a copy will be sent both to the individual as well as the entity he will be originating mortgages for. The certification must be renewed every 2 years.

In addition to passing the background check, each originator is required to complete 18 hours of education every 2 years. After 8 years of certification the education requirement drops to 8 hours of continuing education every 4 years.

The Law has no grandfathering provision and continuing education is required for the entire career of a Certified Mortgage Loan Originator.

The department has not set up the specific standards and requirements for the educational courses as yet. Since the text of the Law specifically mentions courses offered though NAMB and MBA, it would be reasonable to assume that many of those existing courses will be approved to meet the educational requirements. Any approved course that was taken up to 5 years prior to certification can be used in meeting the educational requirement.

Companies that currently have in-house education for their originators can submit their course to the Department for approval. Once accepted by the Department, the course can then be used to fulfill the educational requirement. 

The Department is required to maintain a list of all Certified Mortgage Loan Originators on their web site and the entity each originator is working with. All regulated entities will be required to keep the Department updated when a relationship with an originator has been terminated. 

This is just a brief overview of the requirements. The full text of the Law is on our website, NYAMB.org. There will be more detailed updates presented as they become available. The NYAMB will also be presenting more details regarding these requirements at their Wholesale Conference on February 12 at the Westchester Marriott. The ESMBA in conjunction with the Long Island Chapter of the NYAMB will be hosting a meeting on February 22 to address these requirements. The location hasn’t been finalized yet, but we will be sending out announcements shortly.

This new regulation means more work for all of us so an obvious question is why have both of the New York Trade Associations been supportive of this Law? I think once I explain the reasoning behind the decision, you will agree that this additional work will prove to be good for business.

Let’s start with the basics. We are in a regulated industry. We are all at the mercy of the whims of the politicians and bureaucrats. They don’t need our input to create new restrictions. They have the authority to do whatever they feel is in the best interest of the public. Working closely with the department, has allowed us to develop a degree of creditability with them that enables us to present the industry’s concerns. It’s better to be a part of the decision making process than outside of it, left to fight the results.

A major concern was that we had no idea what to expect from the new administration. No Law is perfect, but the consensus was that we would be running the risk of dealing with a much less industry friendly law if we didn’t get the Bill signed into law before Governor Pataki left office.

Politics aside, let’s look at this from a business viewpoint. Currently there are no statewide requirements for originators, which has left us in an industry overrun with manpower promoting themselves as originators. The extraordinary volume we dealt with over the last few years attracted hundreds of people into the business. People who had no business being in the business. Any industry that bulges with incompetence is destined for trouble. We are rapidly loosing our creditability with the public.

We also need to keep in mind that our companies are the ones who are held responsible for the actions of our originators. An unskilled originator who has been making good money with little or no effort now finds out that he needs to work for every dollar he’s paid. He can easily end up making promises he can’t keep or begin writing questionable applications. Who ends up cleaning up the mess he leaves behind? The company he was working for. Under this new set of regulations all originators will have to invest something of themselves, their time, before they can be certified. Problem loans will be traced back not only to the originating entity but right down to the originator. Accountability is good for business.

As I said earlier this Law in not perfect. We will be working with an uneven playing field. Originators for banks with Federal Charters will not be certified by the State and will not be held accountable to the same standards our originators will be held to. There are 2 positives that are the result of this uneven playing field.

First, Certified Mortgage Loan Originators will need to clear a multistate background check and be posted on the Department website. Criminals are no different than the rest of us, they take the path of least resistance. Someone whose business is profiting from fraudulent mortgages would naturally prefer to stay under the radar. Working for a federally chartered institution is obviously the better place to be.

Second, by virtue of this new regulation, the only originator that can be called “certified” is an originator that is working for one of us. There certainly is a marketing edge here that we can utilize.

We will find that once all the details are worked out and we get comfortable working with this new regulation we will have a more professional and respected industry and a business environment we can all profit in.