Why the Uniform State Exam for Originators Matters to Servicers

The new Uniform State Test needs to be taken by anyone who deals with consumers directly.

As of April mortgage banks large and small are expected to ensure their loan originators take the so-called Uniform State Examination, which by default is relevant to servicers as well.

Same as mortgage loan originators loss mitigation professionals have to take a test if a state requires licensing for all mortgage professionals who deal directly with borrowers in any given capacity.  

“In some states loss mitigation staff, the folks who are modifying loans, those who answer the phone and work directly with borrowers to maybe reduce their mortgage rate, need be licensed,” Haydn Richards of Dykema, a mortgage market expert who specializes in state and federal licensing requirements and housing finance regulatory compliance oversight.  

One of the challenges the mortgage servicing industry is facing is that often those who are in the front lines of providing loan modifications are not licensed originators, he says. Since for them the test can be a challenge because it does not deal with servicing principles, “the uniform test will lessen the testing burden.”

Going forward all loan originators and loss mitigation professionals who need to get a state license or renew their old license can take the uniform state test exam before they apply for a license.

So far regulatory agencies in 27 states have agreed to accept the new National SAFE Act Mortgage Loan Originator Examination, a uniform test designed to substitute state-specific examinations.

However, a spokesperson for the Conference of State Banks’ Supervisors told this publication, bankers need be aware that exam changes do not change the licensing process, meaning those interested in getting a state license still have to file a licensing application and get approved by the state regulators.  "There is no such thing as a national state license," he said.

Mortgage professionals who already have a state license have a one-year grace period, until March 31, 2014, to take a 25 question version of the uniform test, instead of the full 125 question exam, Richards said. After that deadline everyone will have to take the full test.

The Nationwide Mortgage Licensing System will be implemented gradually starting in April in 20 states. Regulators in four other states have agreed to accept uniform test results as of July 1, 2013. Two more states will accept the uniform test by October 1.

It is about time, says Richards. Unified testing “will help level the playing field” for mortgage loan originators and servicers who need the expertise to mitigate loan losses.

Ever since the SAFE Act was passed a few years ago, “there’s been a different dichotomy” between a state licensed non-depository mortgage lender and a bank, he says, because until now loan officers working for banks and certain affiliates of banks had to register with regulators but did not have to take a test or go through a skill testing and education process, making it easier for banks to hire loan officers.

Non-depository, state-licensed institutions on the other hand, had to comply with “a significant number” of individual licensing requirements for loan officers that entail mortgage education and testing—both on the state and the federal level. “So if I want to do business in 50 states and D.C., I have to take 50 state tests, plus the national test, which would be an incredible burden,” he says.

“It is really exciting for non-depositories and as a development,” because the regulators have created what they are referring to as the Unified State Test, which is not a new test, he explains, but an upgrade on the existing national mortgage loan originator test. “It adds a different section that tests on some more uniform state test requirements.”

It means that if a loan originator passes the test, all 24 regulatory agencies that have agreed to accept it, will treat that license as acceptable in their state so that loan officer does not have to take a state-specific exam.

Currently almost half of the states have agreed to the test, he says, compared to roughly 60 state-level regulatory agencies nationwide, and that is a very significant number.

“What it ends up doing is that, even though non-depository mortgage licensed originators still need to take tests, they’ll be able to take fewer tests and conduct business in more states,” he says. The result will be “a more leveled playing field,” although not a completely leveled one.

“We should give credit to regulators,” Richards says, because once the industry made them aware of this issue, “they took action.”