Mortgage originators proliferating in Indiana

The number of individuals employed by lenders as mortgage loan originators has jumped more than 50 percent since the state a year ago adopted a uniform licensing test now used in 38 states.

Not having to pass a separate licensing test for each state makes it simpler for mortgage loan originators, or MLOs, to become licensed in multiple states, including Indiana.

But a year after Indiana dropped its state-specific testing requirement, it’s unclear whether the increase in originators will translate to more competition here that, in theory, should be good for consumers.

It’s also not clear to what extent the change could be good for Indiana-based MLOs, who will find it easier to do business in other states accepting the uniform testing standard.

“Is it a net gain or a net loss? That’s anybody’s guess” at this point, said Scott Weghorst, president of Fishers-based Diehl & Associates, which provides mortgage skills training.

At least to the extent Indiana mortgage originators now don’t have the hardship of separate tests in other states that once varied significantly, “I believe that our members have benefited from that,” said Alan Thorup, executive director of the Indiana Mortgage Bankers Association and Greater Indianapolis Mortgage Bankers Association.

According to the Indiana Department of Financial Institutions, the number of mortgage loan originators licensed in Indiana at mid-April was 6,024 compared with 3,882 at the end of 2012.

That was just before Indiana dropped its state-specific licensing test for the uniform standard in April 2013.

The number of licensed companies that employ MLOs has also risen in Indiana—from 293 at the end of 2012 to 318 on April 11. Nineteen of those companies are domiciled here.

“I am not sure there is any way of knowing for sure about the specific rationale for the net increase in first lien mortgage lenders. … The uniform standard could have played a role … but there’s no way to quantify whether it’s [uniform standard] or just market share expansion,” said Mark Tarpey, deputy director of non-depository institutions at the state’s Department of Financial Institutions.

Streamlining licensing

For years, each state had its own testing requirements for individuals who wanted to obtain a license to originate a mortgage. That hassle discouraged lenders from serving some states.

The uniform test and application was developed by state financial regulators under the Conference of State Bank Supervisors. Since then, “most states have seen this dramatic increase in the number of mortgage loan originators,” Tarpey said.

While this increase in the number of originators could be good for consumer choice, it also raises the prospect of bad apples rolling into Indiana.

Tarpey said the DFI has not observed an uptick in problem originators. “We haven’t seen a pattern or practice, if you will. The [testing and licensing requirement] bar has been raised in all states.”

He also noted that, at the end of the day, the department regulates the individual and the mortgage loan companies they work for. That’s an incentive for mortgage lenders to keep their originators on the straight and narrow.

Another reason there hasn’t been much in the way of shenanigans is that “the mortgage market is still pretty vanilla,” Tarpey said, meaning loan terms and products remain fairly conservative following the housing market collapse. There are fewer riskier types of loans being actively marketed and originated.

Weghorst said other factors are driving the number of mortgage loan originators. Many more came back into the market following lowered interest rates that last year put the wind back in the sails of the industry.

Some mortgage companies are also expanding into other states as a way to build economies of scale and to diversify their income. One example is Indianapolis-based Stonegate Mortgage, which now operates across the United States.

The uniform MLO testing should make that even easier for Stonegate to plant a flag in other markets, experts said.

Mortgage lenders and MLOs they employ are not to be confused with loan brokers. Such brokers are entities that find mortgage loans for consumers but do not fund the loans.

The Indiana Securities Division licenses these mortgage loan brokers (and MLOs who are employed by the loan broker), whose numbers have fallen over the years with difficulties in the housing market.

The division now has 413 individuals registered as mortgage loan brokers, down from 512 in 2013.

“I don’t have stats for previous years, but anecdotally, I can tell you that we have seen a decline in the number of loan brokers in Indiana over the past few years,” said Valerie Kroeger, spokeswoman for the securities division.•

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Greg Andrews’ Behind the News column will return next week.