So, you want to be a residential mortgage loan originator (MLO), huh? Well, if you are seeking a fast-paced, exciting career through which you can make a positive difference in the lives of many while earning a very respectable income and if you are willing to dedicate the commitment, effort, and toil to making that happen, then great! You have taken your first step simply by reading this article. If, however, your goal is nothing more than to get rich as soon as possible no matter what it takes, this job is not for you. There were plenty of loan originators who were solely motivated by the money prior to the 2008 mortgage crisis, and most of them are long gone as they should be.
Becoming a residential mortgage loan originator is an admirable goal with a lofty income potential. But the motivations for becoming one must be honorable. Over are the days of viewing the customer as nothing more than a means to the end of getting paid. Every loan originator must understand, honor, and live by their fiduciary responsibility to always act in the best interests of their customer. Karma is real. And through the mindset of always looking out for your customers’ best interests, you will achieve so much more than for what you are currently hoping.
How Does the Journey Begin?
The first step to becoming a residential mortgage loan originator is to request your free individual NMLS account by registering through the Nationwide Mortgage Licensing System & Registry via https://www.statemortgageregistry.com/Public/RequestAccount.aspx
The NMLS is the government agency that oversees the registration of all residential mortgage loan originators and the companies that sponsor them throughout the United States and its possessions. Whether an MLO is required to be licensed or not, at the very least, all MLOs must register through the NMLS. Upon registering, you will be assigned your NMLS number, also referred to as your “unique identifier.” This is a number that is unique to you that connects you with everything you do between now and the end of your mortgage career.
Once you have registered with the NMLS, you will need to decide on the capacity in which you would like to work. If you ultimately decide to secure employment as an MLO through a depository institution that is regulated by a federal banking regulator or the Farm Credit Administration (FCA), your prerequisites are now complete. All you would need to do at this point is to secure employment as an MLO through a bank or other type of depository institution.
Benefits to working for and originating residential mortgage loans through a bank consist of:
- Capitalizing on the bank’s name and branding – customers may initially have more confidence collaborating with you if you work for a known and established banking institution
- Access to more potential business – existing bank customers tend to seek out their bank’s mortgage originators when in need of mortgage financing
- Banks often conduct the marketing for their loan staff
- Training – banks typically provide quality training (although many other lenders do as well)
- Benefits – banks frequently offer valuable benefits
- W-2 employment classification – banks generally hire their mortgage loan originators as actual employees and, as such, deduct taxes, provide superior benefits, and may offer a salary in addition to the potential for earning commissions
Drawbacks to working for and originating residential mortgage loans through a bank consist of:
- Limitation to a bank’s products and services – if the customer’s needs and wants are best met by a product that the bank for which you work does not offer, you would have to either compromise your fiduciary responsibility by placing them into a product that you do offer that is not in their best interests or you would lose the transaction by having to refer them out to a different lender
- Restricted to conducting business in the bank’s footprint – you would not be able to serve potential applicants who are seeking to finance homes where the bank does not maintain a retail presence
- Limited earning potential – although working as an MLO for a bank can earn you a healthy income, there is not as much profitability potential in working for a bank than through other channels
If you decide that you are better suited to originate loans for a non-bank lender or mortgage broker, you will need to secure a state-issued MLO license.
Non-bank mortgage lenders tend to hire their loan originators as 1099 (self-employed) contractors although some do sponsor their MLOs as W-2 employees. Regardless, most pay 100% commission. You may, however, find non-bank lenders who offer their new loan originators a base salary in the beginning as they’re getting themselves established and even provide a periodic draw which would be repaid through future earnings. Non-bank mortgage lenders lend their own money but typically only have access to their own products.
Mortgage brokers do not fund loans. Mortgage loan originators who work for mortgage brokerages function as intermediaries between their applicants and many lenders that fund the loans that the broker MLOs originate. Mortgage brokers typically hire their originations staff as 1099 contractors although some do sponsor their MLOs as W-2 employees. Most pay 100% commission. Some mortgage brokers may offer a base salary at the beginning and periodic draws.
Benefits to working for and originating loans through a non-bank lender or mortgage broker consist of:
- Significantly higher income earning potential – non-bank lenders and mortgage brokers tend to pay their originations staff much higher commissions, especially since many do not offer base salaries
- Access to numerous mortgage products to best serve their customers’ needs and wants
- Access to applicants seeking to finance homes in any state in which the sponsor and loan originator are licensed – and if demand warrants it, most non-bank lenders and mortgage brokers are more than willing to secure licenses for any state in which they are currently not licensed
- Mortgage brokers can compare pricing through numerous lenders and channels in order to secure the best available pricing for their borrowers
Drawbacks to working for and originating residential mortgage loans through a non-bank lender or mortgage broker consist of:
- Originators must develop their own customer base (book of business)
- Originators must amass their own referral sources
- Appropriate and quality training is not always a priority and loan originators often have to learn as they go through trial and error
- As 1099-commissioned originators, if business is slow, so are the earnings
- Lack of name brand awareness – developing customer loyalty is often more challenging
- Limited marketing tools – loan originators are often left to their own devices and creativity to market their services
- Broker fee – mortgage brokers typically charge their borrowers a broker fee that is not charged through a bank or direct non-bank lender
Regardless of the path that the aspiring mortgage loan originator chooses, there are some extremely important factors to weigh when considering a potential employer.
Choosing One’s Employer is Much More than Negotiating an Exciting Compensation Plan!
If a newly-licensed driver was to be pulled over by a police officer for violating some vehicle and traffic law, what is the likelihood that he would simply be let go without consequence after explaining to the officer that he is new to the road and should therefore not be accountable for knowing the rules? Not at all likely. Any driver, whether new or seasoned, must know of and obey all vehicle and traffic laws that are applicable where they drive.
Similarly, a new mortgage loan originator who violates a federal or state regulation, simply because he or she was unfamiliar with it, is not immune from the consequences. When a loan originator is practicing as a registered or licensed MLO, he or she must be aware of and abide by all of the rules governing the mortgage industry. Failure to do so could result in criminal and/or civil sanctions.
Training, Training, and More Training!
When a police officer graduates from the police academy, is she ready to jump into a patrol vehicle and patrol on her own? Absolutely not! The newly-sworn police officer must successfully complete a probationary period of training before being allowed to patrol on her own. Both the newly-sworn police officer and the newly-licensed mortgage loan originator cannot simply hit the ground running. Both must be appropriately trained before independently performing their professional responsibilities.
Exceptional training should be the number one priority when searching for one’s new employer. As such, the very first question to ask one’s potential employer is how much and what type of training does the company offer. If training is minimal and does not appear to be a major priority, if the manager overseeing the new employee is a producing manager who is not only responsible for training his or her staff but also for managing his or her own customer pipeline, if the employer does not automatically assign new loan originators to a seasoned mentor to shadow for the first several weeks, or if the sponsor’s primary lure is that they provide the loan originator with leads, plainly and simply, RUN!
The new loan originator’s potential for success depends heavily on the amount and type of training that he or she receives early on. Successful employers understand and appreciate this and set their newly-hired MLOs up for success by staffing non-producing managers and training their new hires well. And, regardless of how many leads a company promises to provide, if those leads are any older than minutes from when the inquirer initially submitted their inquiry, the lead’s subject will already be working with someone else by the time that you call them or is grossly unqualified.
Regardless of the path down which the new mortgage loan originator ultimately travels, he or she must enter the business knowing that it takes time to learn, it takes time to establish one’s reputation, it takes time to earn the trust of referral sources and customers, and it takes time to build a robust and vibrant pipeline. But, with the appropriate commitment to exerting the effort and energy needed to learn, grow, and achieve, the potential for personal, professional, and financial success is enormous.
Next week: Part Two – The Process for Securing a Mortgage Loan Originator License.