Occupational Licensing Serves Us NOT the Consumer

By
Mortgage and Lending with San Diego VA Home Loans/858-777-9751

I often chuckle at the comments and statements made here and across the internet calling for national licensing of originators and higher standards for real estate licensees.  The arguments always have these three themes:

1- Consumer Protection:  Are you kidding me?  I have yet seen a state licensing board that seriously polices its licensees.  State licensing boards allegedly screen applicants for "moral character".  All they do is prohibit people with a felony from entering the business.  I wonder if denying a gal who dated the wrong guy 20 years ago from making a living is fair.  After all, she did "pay her debt to society".

Licensing boards do so little to monitor the behavior of their licensees post facto.  In fact, I've seen the broker cabal "outlaw" an agent who was successful in client advocacy but hopped shops.  The three brokers for whom he'd worked conspired to drum him out of the business because he had "burned them" and went to work for an upstart brokerage in town.

Occupational licensing "for" consumer protection is about neither.  It's about protecting the status of the industry participants and collecting money for the State.

2- Competency:   Do you really think that because you have a license you are competent?  Competency comes from practice.  I can recount many misdeeds from NASD licensees that weren't malicious but stemmed from incompetency.  Most consumers who have bought one or two homes know more that 90% of the loan originators and 60% of the Realtors.

The occupational licensing supporters would do well to disband the agent and originator licenses and require all practitioners to be paid a salary to work for a licensee for two years as an apprentice.  This would make real estate brokers and mortgage brokers think twice before "body-shopping" the way we have for the past 5-10 years.  People who actually wanted to deal with a consumer would be required to pass a real estate broker's licensing test or a mortgage broker's licensing test.

3- Consumer Confidence:  The occupational licensing supporters suggest that national licensing of originators and increased standards for real estate agents will inspire consumer confidence.  Hog wash!  The consumers don't think a real estate license or mortgage broker's license amounts to much because they already know most of what you know.  The see you as a functionary not a fiduciary.  They see you as a barrier to the money or the house and not a trusted advisor.  

The only way to inspire consumer confidence is through reputation in the marketplace and reputation alone.  No piece of paper with a state number on it is going to achieve what reputation does. 

Why do I care about this?  I'm already in the club and I have no doubt that my daughter will be in the club when she's ready.   I care about it because deep down in most licensees' hearts, you want this to happen so you can create a smaller turnstile for the consumer to pass through.  You know that if you increase the barriers to entry, you can charge an enormous amount of money for the right to cross through your turnstile for merely acting as a functionary.

Some of you may argue that licensing weeds out the bad apples; it doesn't.  The bad apples always find a way to hide behind the implied respectability of the license.  Others may argue that the last five years has produced an enormous amount of fraudulent activity, unsuitable lending practices, poor buyer's representation, etc. They'll point to the unregulated growth of our industries as the problem.  

Nothing could be farther from the truth.  Real estate went through a paradigm shift about six years ago,  Half of us in the business before 2001 were antiquated and ill-prepared for the changes this new paradigm brought.  The other half are figuring it out and will actually make a living providing good counsel for years to come.

The ones who are screaming for increased standards are still operating in an economic model designed by Franklin Delano Roosevelt.  They're dinosaurs who attempt to hang on to their old ways by letting less of those in the know into the club.  That's feudalism and the Peter Principle at it's worst.

It's just plain wrong.

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Rainmaker
144,419
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Brian

I always enjoy the logic expressed in your posts.  Even when we disagree on any issuse, I appreciate your methodical angle of approach to a situation.  A thought provoking post. 

May 26, 2007 01:00 PM #1
Rainmaker
1,136,365
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
Brian, You're just messin' with me. So you are saying that increased standards to be a REALTOR(R) is wrong and an antiquated way of thinking? Do you believe that our current standard of writing a check is better than an improved standard of, at minimum, some basic training and possibly apprenticeship or required education? I agree a tighter standard would not weed out all the bad apples but it would certainly help. But I also know it ain't goin' to happen. Why? Because as you have said many times "It's all about the benjamins". However, I think it is something we should strive for. I think it's something we at least owe to the public to try. But what the heck do I know, I live in my own little world, where I still believe change is possible.
May 26, 2007 01:32 PM #2
Rainmaker
612,007
Sharon Simms
Coastal Properties Group International - Christie's International - Saint Petersburg, FL
St. Petersburg FL - CRS CIPS CLHMS RSPS
You're right, Brian, that licensing doesn't bring competency, much less excellence. Nonetheless, more education is better than less, and higher standards are better than lower. There would be less bad apples if we all got out of our complacency and busyness and went after those we saw wrong doing.
May 26, 2007 02:16 PM #3
Anonymous
Athol Kay www.reagentinct.com

Lets be serious. You get more training working at McDonalds than in your average brokerage.

If compentence comes from practice, make that practice part of pre-licensing. Call it an internship.

No license to practice until you have interned on 10 transactions.

Problem solved.

May 26, 2007 03:18 PM #4
Rainmaker
151,261
Harper Team
J Rockcliff Realtors - San Ramon, CA
There you go again Brain - trying to bring common sense into the industry. While your at it, you probably would like to see all those nice little designators after an agents name really mean something also. It's much easier to just write the check. If you'd like another masters degree, I can send you an Internet link.
May 27, 2007 03:23 AM #5
Rainmaker
310,377
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

The argument is always "more education and training" is better, right?  My answer is that it isn't.  Many people use the license as an implied expertise.

We are teaching the WRONG skills in the licensing courses.  The material is antiquated. So, Bryant and Sharon, I think the "more education can't be bad" argument doesn't work.  I think it's dangerous because we're teaching people skills that are not only irrelevant, but dangerous to a consumer.

I'd love to see the Simms-Tutas Florida School of Real Estate.  You two are good examples of the half that has figured out the changes.   

Absent a serious attempt at education for real expertise, the current system is anti-competitive and should be abolished.

 

May 27, 2007 05:55 AM #6
Rainmaker
310,377
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

I think it's something we at least owe to the public to try. But what the heck do I know, I live in my own little world, where I still believe change is possible

I believe that change is possible, also.  I think we owe the consumer something better, too.  The current system ain't cutting it thought, Bryant .

There would be less bad apples if we all got out of our complacency and busyness and went after those we saw wrong doing

Amen, Sharon.   The problem comes from the licensing boards.  They refuse to act on violations when reported.  It is so bad in California that none of us will report wrongdoing because we'll get sued.  

If the system is broken, fix it.  Absent that commitment, abolish it; it's ineffective. 

May 27, 2007 06:01 AM #7
Rainmaker
1,136,365
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
So Brian it's not that more education and training wouldn't help. It just has to be the RIGHT education and training. And this will never happen on the licensing level BUT it could happen on the NAR level if they were so inclined. They is definitely a void that needs to be filled.
May 27, 2007 07:51 AM #8
Rainmaker
310,377
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

It just has to be the RIGHT education and training.

Exactly. 

And this will never happen on the licensing level 

Which is why I suggest it be abolished. I knew you'd see through it, Bryant.  You always do. 

May 27, 2007 08:24 AM #9
Rainmaker
303,699
ARDELL DellaLoggia
Sound Realty - Kirkland, WA
Licensing protects consumers in and of itself, because it makes people "trackable".  That's why agents being "anonymous" hits a nerve with me.  We must use our names so consumers can point at us by name and find is via our licensing, when a consumer is harmed by one of us. 
May 27, 2007 08:29 AM #10
Rainmaker
592,421
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Brian,

A chuckle is a good way to get thru the fear that flashes to mind as you realize the absurdity that these people propose. A chuckle should be just about long enough to remember that this to shall pass.

"Consumer Protection" ya, right! The only thing we've ever experience from additional governmental "protection" is a loss of rights and options. Every time the call for "Consumer Protection" is answered the only ones to benefit are the growing bureaucracies.

As a REALTOR®, I spent a decade campaigning for better testing and education, back in Michigan, we got several more bureaucrats and a standardized national test. The only results were that anyone could memorize the answers, and no one was required to understand real estate. It's the same story here in Nevada.

As a Nevada mortgage broker I pushed for licensing of LO's so that they couldn't be shopping brokers and we'd have an accurate history. You should be very careful of what you wish for! It didn't work, the brokers now live in fear and the crooks thrum their nose at the law.

"Consumer Confidence" that's goes with "Consumer Protection" I'm approaching four decades in lending and real estate and the only thing that I know of to protect the public is the personal integrity of the individual LO and/or REALTOR®!

As to licensing weeding out the bad apples, I believe it only thins out their completion! If licensing works why are our streets so dangerous? If laws are the answer why do people still speed thru school zones?

I'm not so sure about a recent paradigm shift, I think that it was brought on by FDR when the people shifted from self reliance to governmental dependance. It seems that the more things change the more they stay the same. When the Germans had economic troubles did they blame themselves? No, they blamed their Jewish neighbors. Some are not paying their sub-prim loans are they blaming themselves for not doing what they agreed to? No, their blaming their mortgage brokers. Thank God we don't wear identifiable hats, we'd be stoned in the streets, just before those licensed drives run us over.

As you know, you'll flourish with the coming changes so will your daughter. Those that know how thing work always do, they earn it. The public will lose big time, but they'll be protected!

By the way great post!

Bill

William J Archambault Jr

The Real Estate Investment Institute

http://www.reii.org

May 27, 2007 09:32 AM #11
Rainmaker
310,377
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

We must use our names so consumers can point at us by name and find is via our licensing, when a consumer is harmed by one of us

...but who's going to take action against the licensee?  The state?  They refuse to sanction bad apples.  A central registration database is okay but that's not licensing.

Bill, per usual, you compete most of my thoughts. 

May 27, 2007 09:40 AM #12
Rainmaker
310,377
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

I hope I'm not coming off as abrasive.  How about some integrity in the licensees to report and insist on reporting illegal activity instead of wanting everybody's name in the database?

Here's an example:

In 2000, I received a letter from Bank of America accusing a loan originator who worked for me of fraud.  They insisted that I dismiss him or I would lose the brokerage relationship with B of A.  I immediately called for  a meeting with them and asked them to put their request in writing.  I explained that I would be furnishing this to the local FBI office along with a request to investigate the borrower and loan originator.  I explained that I would be a co-complaintant with the Bank of America.

The letter never came.  The explanation was that they didn't want to have the "liability" if it was the borrower.  The borrower submitted false tax returns to the originator (unsigned) and was a substantial customer of BofA on  the asset management side.  Bof A felt that by punishing the originator, they would look like they were proactive about fraud in the  eyes of Wall Street.

I've had similar instances with other wholesale lenders.

The Realtors refused to become involved because of the "potential liability".  They funded the loan with their in-house lender, with the falsified tax returns.  I received a letter from the real estate broker admonishing me for "interfering" with the transaction.

It seems the game has become..cheat until your caught and always have plausible deniability.

So, what will more regulations do?

May 27, 2007 09:52 AM #13
Rainmaker
235,071
Marlene Bridges
Village Real Estate Services, Inc. - Laguna Hills, CA
Laguna Homes|Laguna Condos|Laguna Real Estate

Brian - While I think you're adorable, I can only agree with you in part.  I do agree that the state regulatory body is there to issue licenses and collect revenue.  Here in California I once heard there are only a handful of people monitoring real estate licensees.  That is just not enough for the million plus agents who are licensed in this state (CA).  So, I believe it becomes necessary for us to monitor our own. One of the things I'm passionate about is my work on the Grievance Committee for my MLS Baord, Pacific West Board of Realtors.  The cases we review are proof positive that your question,  "Competency:   Do you really think that because you have a license you are competent?" is a very relevent one. So many of the cases we review reveal that agents do what they see other agents do and copy it---particularly in advertising to the public. Thus the ethical errors are perpetuated...just because "everyone does it" doesn't make it right. 

For some, without any ethical guidelines in place or anyone watching-they would not make the ethical choice.  Ok Brian-I admit it.  You can put me into the dinosaur class who speaks out for stricter guidelines, higher standards and more training.  It is my belief that if we are working with people to help them handle the largest single investment in their lives, we need to have proved some level of competency beyond passing a test where all that was necessary was taking a cram course to memorize the answers to questions that will seldom if ever come up in the daily practice of real estate.

Oh my---stepping down from my soapbox...I remain your loyal fan and friend.  Glad we are able to disagree and have some healthy discussions and remain buds.

May 28, 2007 03:25 AM #14
Rainmaker
586,143
Mitchell J Hall
The Corcoran Group - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn
Brian I get what you are saying. It's not the license or even training it's the hiring practices. Brokers will hire any warm body with a license. My former industry didn't require a license but they put you through the ringer during the interview process. 6 interviews with different levels of people within the company. 100's of candidates applying for 1 job opening. Brokerages have nothing to lose from a bad hire. They are not paying anything. Recruitment in real estate is like a crap shoot.
May 28, 2007 01:45 PM #15
Rainmaker
310,377
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

Marlene.

We don't disagree on much.  California would be well-served to do away with the agent's license and only isue broer's licenses.  Apprentices can work for brokers who will not be allowed to share commissions with them.  After two years as an apprentice, they can sit for the broker's license.

The same would go for originators.

What would happen?  You'd have far fewer people who would be willing to work in real estate and the consumer would get someone with real knowledge.

Or just do away with licensing altogether. 

May 28, 2007 01:49 PM #16
Anonymous
Robin M. Gronsky

I'm a lawyer who helps individuals and mortgage companies get their mortgage broker licenses and I get inquiries all the time from people who have no experience in the industry who want to get a mortgage broker license.  And there are states out there who do not require mortgage industry experience to get the license.  I like your idea that there whould be an apprenticeship, working for another mortgage broker, to get experience before you can get your own license.  I've given that advice myself.  But an apprencticeship will not cure the problem of the rogue loan officers who will say anything to get the signed 1003.  Frequently, by the time the complaint comes in to the state regulators that loan officer has lmoved on and the company is left holding the bag. 

Robin M. Gronsky, Esq.

Gronsky Law Office

www.mortgagelicensesolutions.com

 

May 31, 2007 03:44 AM #17
Rainmaker
310,377
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

Good comments, Robin.

I agree with your general message and offer two specific solutions:

But an apprencticeship will not cure the problem of the rogue loan officers who will say anything to get the signed 1003

Make a testing requirement a signed recommendation from the "mentor".  If they spend two years doing it correctly, the law of inertia comes into play.  Licenses won't cure the problem of rogue originators, either.

the time the complaint comes in to the state regulators that loan officer has lmoved on and the company is left holding the bag.

Companies need to supervise better.  Originator licensing provides an excuse for the company to "throw the problem back" on the licensing entity. 

My theory understand the premise that licensing an originator (or agent), while sounding neat and tidy, doesn't really address the underlying problem; bad lending practices.  Only "the man with the money" can cure that problem (READ: lenders) 

 

May 31, 2007 06:08 AM #18
Rainmaker
98,377
Robert D. Ashby
Robert Ashby Photography - Miramar, FL

Brian,

Excellent post and you covered many of the points with your usual expertise. 

I agree with you that licensing, state approved training, etc. doesn't amount to squat.  Proper education and practice goes far beyond what the states require and I doubt anything that the Feds can develop, after it has been lobbied to destruction, will be worthwhile either.

That being said, since i am on the inside as well, I welcome more legislation to create more barriers so I can continue to grow my business by doing the right thing for my clients, while the so-called competition continues to chase the next deal and worry about the next set of regs to be drawn up, not to mention how to survive the current downturn on the markets.

I tend to smile when I see people write about how "suitability" requirements may affect their business model and that it shouldn't be made law.  Why are they worried?  Are they not doing right by their clients?  It makes me wonder.

Again, I agree with you that licensing, most regs, etc. aren't worth the paper they are written on since no one seems to enforce them, but I don't worry about new regs either.

May 31, 2007 04:04 PM #19
Rainmaker
310,377
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

I tend to smile when I see people write about how "suitability" requirements may affect their business model and that it shouldn't be made law.

Ain't it cool?  The banks are screaming because they troll for 1003s from crappy brokers.  It's called plausible deniability, Robert.  The wholesale lender says "Huh?  It's the broker!"  and the broker says, "Huh?  I just filled out the loan app and ordered an appraisal."

 

May 31, 2007 05:13 PM #20
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