In July 2008, the Secure and Fair Enforcement for mortgage licensing act (SAFE) was passed by Congress. Bank employees (depository institution originators) are exempt from this regulation. However, both bank employees and other (non-depository) mortgage loan originators are required to register with the National Multi-state Licensing System and Registry. (NMLS). From there, all similarities between the requirements applied to these two types of originators ends.


Non depository originators are initially required to satisfactorily complete a minimum of 24 hours of pre-licensing education, pass a national examination created specifically to ensure a level of minimum competency is achieved, and to complete a minimum of 8 hours of continuing education annually.


The vast majority of the industry utilizes one of 125 independent and approved education providers. The testing is securely administered through third party providers. Since implementation, this outside, unbiased validation has played a crucial role in establishing and maintaining a credible process to satisfy the requirements of the SAFE act.


In 2010, Congress adopted an additional provision as part of the Dodd Frank act that requires all loan originators to meet the standard of being called "qualified". The regulations the Consumer Financial Protection Bureau (CFPB) adopted to implement this provision do not specifically require the training and testing of depository institution loan originators. Instead, they merely impose general training requirements on these loan originators commensurate with their responsibilities as determined by in-house compliance advisers.


It is important to note that this lack of scrutiny as it applies to certification is not the norm at depository institutions. In fact, individuals engaged in the sale and disposition of investment and insurance products at these same financial institutions are required to successfully complete licensing examination and undergo an annual or biannual continuing education program. Further, every other significant step in the whole buying process is serviced by a licensed individual, including the real estate agent, the appraiser, and the home inspector. Only the largest investment many Americans will ever make is left to an individual that may not possess the ability to demonstrate the competency that a non-depository loan originator accepts as a vital part of establishing themselves in the industry.


Publicly available information published by the NMLS indicates that the overall pass rate for the national SAFE act test was 64% for the period April 1, 2013 to June 30 2014, a period that encompassed over 40,000 test events. The 2013 annual report issued by the state regulatory registry LLC indicates that there are more than 40,000 loan originators at depository institutions, compared to only 125,000 at non-depository institutions.


Applying the available pass rate to depository loan originators indicates that there may be as many as 150,000 loan originators practicing in the industry that never pass an examination designed to establish minimum competency.


So, who should you hire for your real estate financing - a "qualifed" bank loan officer or a certified non-depository loan officer who completes annual education, examination and certification requirements?