Since loan originator licensing began in Massachusetts, the beginning of the year always reveals the dropouts – something akin to second semester of college, when lots of freshmen are suddenly no longer enrolled. The ranks of loan originators fall off as industry members opt to go elsewhere, and don’t renew their licenses.

The year began with a fairly typical dropoff, but 2011 quickly changed course and has proven different, said David Cotney, Massachusetts’ banking commissioner. Newly approved originators have so far brought the number of licensed mortgage originators from 3,865 at the end of the first quarter to 4,070 as of June 20.

After years of plummeting numbers, the mid-year turnaround constitutes a quick and noticeable spike, particularly to an industry accustomed to seeing its numbers dwindle.

Crossing State Lines

The influx, according to Division of Banks Spokesman Jason Lefferts, is mostly from loan originators employed by large mortgage companies as they seek licensure in multiple states. It should be noted that these originators work for mortgage companies, not banks, and therefore have to go through a more rigorous application and screening process.

Industry sources caution that the non-bank mortgage sector still has some significant challenges to face, but view the uptick in licensed originators as an encouraging sign.

“It just shows that the broker channel is alive and well,” said Denise Leonard, president of the Massachusetts Mortgage Association. Regardless of where the loan originators come from, it’s at least a positive sign of expansion for some members of the industry, she said. The industry has taken a hit, but it’s still important to give consumers choices in where to find their mortgages – and the non-bank industry fulfills that role.

While the majority of the increase comes from big, national companies including Quicken Loans, PHH Mortgage and Embrace Home Loans, it’s not entirely a large-company trend. Waltham-based NE Moves Mortgage Corp. made a handful of new hires this year, too, according to President and CEO William Mullin.

NE Moves’ fresh faces come from banks, and were apparently undaunted by the stricter licensing and screening process required when working for a mortgage company. Mullin said he wouldn’t be surprised if turnover at banks led to the occasional mortgage originator stepping over to companies like his.

Still, the sluggish market means many companies want to cast as wide a net as possible, and that means crossing state lines – and getting new licenses.

If any employees are found to be doing any work that could qualify as “loan origination” in a state where they aren’t licensed, it’s going to cost them. A June 12 Banker & Tradesman investigation noted that New Jersey-based Mortgage Access Corp. will have to pay $3 million in fines, to Massachusetts and others, for violating those licensing rules.

Paul Anastos, president of Walpole-based Mortgage Master, said he hadn’t noticed the competition for loans getting any fiercer within his company’s multi-state reach, but noted that it makes sense for originators to expand their licenses to more states. In a slower lending market like this one, a company or originator doesn’t want to encounter any barriers that could prevent new business from coming in.

Rookie Hazing

It’s also incredibly difficult to hire new originators, said Don Frommeyer, president-elect of the National Association of Mortgage Brokers and owner of Indiana-based AmTrust Mortgage Funding. The dramatic shrinkage of loan originator numbers throughout the country has actually left some room to hire in the industry, he said. But hiring fresh employees is definitely not what it used to be, thanks to tough testing and licensing requirements.

“It is now desperately hard to hire new people,” Frommeyer told Banker & Tradesman. “It’s hard for young people – the commitment is just unreal – and it’s hard for the old people because they just don’t want to deal with it anymore.”

With new compensation requirements, loan originators don’t make as much money as they used to, and it now takes about six weeks to get an employee hired and licensed properly with their new company. Having each existing employee able to cast a wider net is one way to alleviate the problem, Frommeyer said.

Still, the local business is now very much a veterans’ game, said Paul Gershkowitz, president of Needham’s Greenpark Mortgage. After economic turmoil and tough new regulations, battle-tested originators with some professional connections are the ones who have survived, and who will continue to do so – for rookies, the obstacles are often too great.

Greenpark recently hired one brand-new originator, Gershkowitz said, but in most cases the company is leery about bringing on newcomers to the industry. Particularly since originators no longer work on commission but are wage-earners, he added, each new employee represents more of a financial gamble for the company.

But the higher purpose of the mortgage companies remains, Frommeyer said, echoing Leonard’s belief in the industry’s ability to help consumers. Companies like his offer a wider variety of products than would-be borrowers would otherwise be able to find, and expansion is a hopeful sign.

“The more people we can get to come back and expand like that, the better it is.”