Article by: Ben Giumarra, Spillane Consulting Associates, Inc.
So maybe a bit of a “clickbait” headline, but what’s stopping your institution from having a mortgage originator who has a second job? What’s stopping a mortgage lender from having part-time MLOs?
The appeal of working as an Uber (or Lyft) driver is that it can be a “side hustle” – a job you work in addition to your regular job for extra money. You can earn some extra money working whenever/wherever you decide.
With the difficulty lenders have in attracting and retaining sales talent, some crazy ideas get floated around. Admittedly, no one has asked for advice on setting up an Uber-like company for mortgage originators. But we have had questions such as:
- We have an originator retiring, can we continue to have him originate loans, essentially on a part-time basis? He’s not actively working, but still has leads come to him occasionally?
- We are recruiting an originator who has a second job as a real estate agent, is that allowed?
And there’s a history of mortgage companies using public figures such as local politicians and preachers to sell mortgages. All of these scenarios are Uber-like in that they involve the permissibility of the part-time mortgage loan officer.
From a regulatory standpoint, there isn’t much stopping any of these scenarios from occurring (which may surprise you).
The loan officer would need to be an employee (not independent contractor), fully licensed, work with one lender only, and actually do the work, but yeah, it’s possible. They would have to avoid certain things, such as acting as both a real estate agent and originator on the same transaction (normally). But again, nothing insurmountable.
Full Answer & Analysis
Let’s go through this piece by piece.
This requires mortgage originators to be employees- not independent contractors – and to be licensed with a particular organization. The SAFE Act stops short of prohibiting dual employment.
So RESPA Section 8 prohibits “kickbacks” or payments for referrals of mortgage settlement business. So your “Uber- MLO” can’t just cash in for referring friends and family. They would actually need to provide legitimate services, such as taking an application and onboarding a client.
FHA and Ethics
Pursuant to FHA guidelines, dual employment for an originator is permitted but the lender has to determine that it “does not create a conflict of interest.” The FHA rules define “conflict of interest” as “having multiple roles in a single FHA-insured transaction and are prohibited from having multiple sources of compensation, either directly or indirectly, from a single FHA-insured transaction.”
So basically, at least with FHA loans, an originator couldn’t be both the real estate agent and the originator on the same deal. Real estate ethical standards have similar requirements in place, which isn’t limited just to FHA loans.
Even if you’re not an FHA lender, prohibiting working both sides of the deal is probably reasonable anyway.
Similar to the SAFE Act requirement, TILA requires every depository lender to determine, prior to starting a new mortgage originator, that the person “has demonstrated financial responsibility, character, and general fitness such as to warrant a determination that the individual loan originator will operate honestly, fairly, and efficiently” as a mortgage originator.
Nothing in this standard prohibits dual employment. Plus this is a relatively new rule that seems hard for a regulator to enforce. But just putting it out there in the interest of being thorough – Do you think you could make this determination if the person only originates a loan or two every year?
Final Notes: Practical Standpoint and Ethics
So hopefully this was an interesting discussion point. But what remains is the glaring question of whether this is ever practical at all. Can a person in a completely different profession keep their mortgage mind sharp enough to effectively operate as a “part-time” mortgage originator?
And finally, I’m sure some will turn up a nose at the thought of this. Maybe rightfully so to some extent. Maybe not. Who am I to judge?
In Other News
- If you Google hit with record fine …
- CFPB released its monthly complaint “snapshot” report, which is full of some intriguing data. What are consumers complaining about in your state?
- Thoughts on NCUA permitting loan securitizations?
On My Mind …
Is there a name for a situation where someone resists a new technology in the name of security, sticking instead with past practice that is far less secure? Seems like we run across this all the time – “I want to deliver disclosures by mail because who knows, they might get lost in the interweb” Well … letters can get lost in the mail (or just ignored). Electronic delivery methods allow you to actually prove when they were opened, by whom, and on what computer. So …
Brett King in his book “Bank 3.0” complains: “We hear the [banking] industry say that social media, mobile, and Internet are not secure and this is the reason for using caution when introducing new technologies. Meanwhile banks are still sending customer statements in the mail–a channel that is so easily corrupted and so insecure that it is laughable.”
“Know the rules well, so you can break them effectively.”
– Dalai Lama
Thank you to Ben Giumarra, Spillane Consulting Associates, Inc., a member of our Education Committee, who with the support of other experts at SCA have put together this newsletter.