Yesterday someone asked me about the fiscal cliff. "Fiscal what?" I asked. "Never heard of it." Seriously, just as most folks grew tired of the jabbering about the election in the score of months leading up to it, we're probably pretty tired of hearing how Congress and the president can't reach an agreement over a deadline they themselves imposed (see “joke” at the bottom). Why spend a lot of time summing the fiscal cliff up when our very own Dallas Federal Reserve put out a nice piece yesterday summing up the six major attributes of what may happen on Jan. 1? Here you go: http://www.dallasfed.org/research/eclett/2012/el1214.cfm.

Who is going to give a 30-yr fixed rate mortgage to a hundred year old person? Maybe the better question is, "What 100-yr old is going to ask for a loan - and can a lender deny it based on age?" (That is rhetorical - don't write back.) The 2010 Census counted 53,364 people age 100 and older in the United States, and they were overwhelmingly female. For every 100 centenarian women, there were only 21 centenarian men. According to the report, the population 100 and older made up a small proportion of the total U.S. population — representing less than two per 10,000 people. As you’d expect, more than half were 100 or 101 (92% were between 100 and 104). Centenarian women were slightly more likely to live in a nursing home (35%), and centenarian men were more likely to be living with others in a household (44%) than any other living arrangement. In 2010, 86% of centenarians lived in an urban area. Most lived in the South (17,444), followed by the Midwest (13,112), Northeast (12,244) and West (10,564). States with the largest total populations generally had the most centenarians. California had the largest number of centenarians (5,921), followed by New York, Florida and Texas. Alaska had the fewest centenarians (40), followed by Wyoming (72), Vermont (133) and Delaware (146).

This week the commentary has discussed the apparently “hot” topic of licensing and education for depository and non-depository loan originators. I continue to receive comments from both sides of the fence.

"All this 'stuff' about tests does not matter.  Education is fine, but our industry is one that on-the-job-training is paramount.  When I started in the business I was part of a bank commercial loan department.  I processed files, typed loan docs, co-ordinate closing with escrow, collected interest payments, processed demands and recons when loan paid off. Outside of economics 101, I had absolutely no background in lending. I did not know how to spell LOAN. My boss taught me who, what, why, where, and when. Everything was done by hand with calculator and typewriter.  I still have my HP and the formula to calculate an APR. I did take numerous classes.  Remember Scott Potter's ‘How to Analyze Tax Return and Financial Statements”? Best class I ever took, and still works today.  Now, even after taking my state test and the NMLS test, which I passed with 95%, I still don't know which Act does what.  But, I do know I cannot discriminate for any reason, that I have a fiduciary responsibly to my clients and my company. Common sense tells me pretty much what I can and cannot do, but realize regulators can’t bank on that. But my point is that taking a few classes and passing a test does not make you a loan officer.  We are not born with the knowledge to process a loan. Some truly LEARN how to do the job well. Others just muddle through, and get paid in spite of themselves just like any other profession. The part that irks me is the double standard: everyone should have the same requirements. It is known as ‘discrimination’ if one group is treated different than the other."

And another: “We have all heard CFPB continually state they want a level playing field. As I recall, I saw the same phrase in the beginning of the RFA from 1980. The real irony here is that the SAFE Act was originally charged to HUD. HUD was required, but never did, compose a SBREFA Panel and Report that I have been able to locate (Small Business Regulatory Enforcement Fairness Act).  Recently, the CFPB included discussions of the SAFE Act in their SBREFA Panel, however when pushed they said they ‘didn’t want to re-open SAFE at this time.’ So why was it included in the proposal if it wasn’t open for discussion? The SAFE Act should only have to levels of debate upon implementation: 1). Does it help the consumer and 2). Is it anti small business?

“For better or worse, bank LO and non-bank LO’s receive a different education. But well beyond the education is when MLOs have utilized the ‘system’ too often hide their record behind a bank charter. This is not in anyone’s interest. Sadly, it would appear that the regulators are more interested in MDIA violations (exceeding the $100 violation) vs. whether the LO's or MLOs on either side are incompliance with SAFE Act (beyond the mere written word but to the intent). I continually hear that MLOs are operating under others' NMLS numbers or have simply created NMLS numbers. The regulators were made aware and have selectively chosen to ignore or investigate this issue. I will not go forth with the debate that every bank conducting background checks.  If they all do excellent, however it would appear that the ability to overlook some indiscretions that would otherwise exceed the varying state restrictions. I was told, face to face, by a regulator's auditor that this type of fraud did not directly impact the consumer and he wasn't interested.

“SAFE was an excellent concept. It was loosely based upon the Florida registry. Sadly, the big hole in the Florida registry is the same downfall of the SAFE Act. I have heard many claim that the cost would be prohibitive for the banks to have LOs meet the non-banks MLO requirements, however almost every one of these banks has a FINRA Registered Rep in the bank branches at similar costs. Additionally, it was the basis of SAFE to have the cost placed upon the MLO, thus the MLO places their money, time and License at risk if they engage in inappropriate actions. Again, it is the MLOs skin in the game. The most troubling aspect of the oversight of SAFE, in its current format, is the transition. MLOs, in many states cannot transition from non-banks to banks and back to non-banks without losing their licenses in the transition. This is counter to the FINRA RR and would benefit the banks over the small business entities that RFA claims to protect. Further, this flies in the face of the MLO having something to lose, or their skin in the game. Some have said this falls on the state regulators while others call it a revenue stream. This prohibited practice of anti-business, was absolutely not the purpose of the SAFE Act.

RFA required the SAFE Act to have a SBREFA Panel and Report. When the cost per loan officer often exceeds $1,200 for just the first state licensing, excluding annual renewal,  while a bank cost is $86 for authority to lend in all 50 states and the commonwealths, this is a simple disgrace. For anyone to argue that the SAFE Act, in its current application, is not anti-small business is a blatant lie.”

Lastly this note, “Regardless of where an originator works, we, as an industry, cannot assure that all have met the same standard. I am certain some of the 4,000+ exempted banks have far better training. But many do the bare minimum. The fact is that many LO's who have failed the test have been hired by banks where the test is not required. There is evidence of that. And if the public wanted to, via some kind of class action lawsuit, or some regulator took it upon themselves, the loan officer licensing exam can be challenged based on the way it has been implemented and the role of the individual states in setting their own requirements.  As I understand employment law, the content of any test or a testing requirement itself must be shown to be germane to the job requirements if is to withstand legal scrutiny.  We have seen this in the successful challenges to the tests for promotion within police and fire departments.  The fact that regulated institutions are exempt from the testing and licensing requirements undercuts the legal basis for the test and licensing requirement.  If the piecemeal requirement were imposed by a private business or local government, it would have been tossed out a long time ago.  I think the key point is that unless the regulators can certify that the alternatives to licensing and testing offered by the regulated institutions are, at a minimum, the equivalent of the NMLS, the NMLS requirements to not pass muster as being germane to what a loan officer does and is therefore open to the same legal challenges that have mounted against other employment testing. And the individual state requirements also undercut the legal basis for the test: unless a state can justify why its incremental requirements are germane to doing business as a loan officer in that state versus any other state, the unique state requirements are not defensible under labor law.”

The writer continued, “As for the small institution argument that they only make a few loans year and therefore should not need to licensed, I am not aware of any other small institution exemptions under QM, servicing, LO compensation, fair lending, or any other requirements, so why this one?  Saying a LO does not need to be tested or licensed because that LO only makes a few loans a year is like saying someone does not need to be licensed and tested to carry a concealed weapon because they promise to only carry it a few days a year.  It is even more important to license the occasional loan officer because they will not have the experience gained from seeing many applications and situations and the education will make up for some of that lack of experience. My suggestion is that the industry’s strategy is twofold. First, make it clear to the regulators and the states that it is going after the legal basis for the licensing and testing requirements because the exemptions and individual state requirements are prima facie evidence that that they are not crucial to actually being a loan officer.  I think there is a disparate impact argument under labor law that would help this case. Second, I would push the regulators to require the exempt institutions to certify in detail their internal testing and hiring requirements, and make them subject to their own set of regulations for LO qualifications.  If the compliance burden is too great, or the potential penalties for a compliance error too severe, the regulated institutions might jump at the chance to simply run their LOs through the NMLS.  Think also of the headline risk: "Examiners find XYZ Bank employed several ex-felons as loan officers."  The licensing exemption would disappear overnight.  In discussions with the banks, we could simply say that we see this on the horizon and the easiest solution is to go along with expanding the NMLS requirement.”


(Today’s “joke” is from the Borowitz Report.)
WASHINGTON - The international terror group known as Al Qaeda announced its dissolution today, saying that “our mission of destroying the American economy is now in the capable hands of the U.S. Congress.”
In an official statement published on the group’s website, the current leader of Al Qaeda said that Congress’s conduct during the so-called “fiscal-cliff” showdown convinced the terrorists that they had been outdone.
“We’ve been working overtime trying to come up with ways to terrorize the American people and wreck their economy,” said the statement from Al Qaeda leader Ayman al-Zawahiri. “But even we couldn’t come up with something like this.”
Mr. al-Zawhiri said that the idea of holding the entire nation hostage with a clock ticking down to the end of the year “is completely insane and worthy of a Bond villain.”
“As terrorists, every now and then you have to step back and admire when someone else has beaten you at your own game,” he said. “This is one of those times.”

If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses the role of the IRS and REMIC’s in the current credit crisis. If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what's going on out there from the other readers.

Rob

(Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived commentaries, go to www.robchrisman.com. Copyright 2012 Chrisman LLC.  All rights reserved. Occasional paid notices do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)