Loan originator training: How much do you need?

There is a lot of detail to unpack in the new loan originator compensation rule effective January 1, 2014. In fact, if one more provision is packed into Section 1026.36 of Regulation Z, I’m convinced it will explode all over the CFR. One of those many nuances pertains to loan originator training. The rule requires banks to “[p]rovide periodic training covering Federal and State law requirements that apply to the individual loan originator’s loan origination activities.” The commentary provides a little guidance, but not enough to give you much comfort: “The periodic training . . . must be sufficient in frequency, timing, duration, and content to ensure that the individual loan originator has the knowledge of State and Federal legal requirements that apply to the individual loan originator’s loan origination activities. The training must take into consideration the particular responsibilities of the individual loan originator and the nature and complexity of the mortgage loans with which the individual loan originator works.”

The commentary goes on to provide a safe harbor if a loan originator gets the annual eight hours of NMLS certified training required of licensed SAFE Act MLOs. Recall that bank MLOs are only required to be registered, not licensed, and thus have never been required to get the eight hours of NMLS certified training. The vague language in the rule and commentary begs the questions “how often must we provide training” and “how much training will suffice under the rule”?

Regarding frequency, the prudent approach is to require at least annual training for loan originators. Annual training has become the norm in many areas, such as BSA/AML compliance and fair lending. Some banks may be able to justify training less frequently than annually. If that is the case, you will want to carefully document your rationale that the training is still sufficient under the rule.

The duration and content required under the rule is not as clear as the frequency. There is not as much precedent. Clearly, the most conservative approach would be to require eight hours of NMLS certified training for all your loan originators. The challenge with that approach is NMLS training options are limited and could be costly. Furthermore, your bank may have loan originators under the new definition that engage in a very narrow subset of loan originator activities – they may not need eight hours of training. Nonetheless, the safe harbor approach is definitely the safest, and may be a fit for some banks.

For other banks a more nuanced approach may be appropriate. Instead of eight hours of NMLS certified training across the board, perhaps loan originators are segmented by job duties – those that engage in a broad set of loan originator activities get eight hours of training and other loan originators get a lesser amount depending on their particular responsibilities. Ultimately, if loan originators get high-quality training and you document that it is commensurate with his or her loan originator responsibilities, you should be compliant with the rule, with or without the NMLS certification. Documentation is the key – these rules are new to examiners too. They will be looking for strong documentation and evidence that you have implemented the rules in a way that fits with your bank.