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   ARTICLE   |   From Scotsman Guide Residential Edition   |   July 2016

Get Ready to Make the Grade

Preparation and clear thinking are keys to passing the national licensing exam

Get Ready to Make the Grade

Whether you are new to the mortgage industry or have years of origination experience, the prospect of taking a national licensing exam can be daunting. The stats speak for themselves, as less than two-thirds of those taking the exam for the first time manage to pass the test — which was devised by the Nationwide Mortgage Licensing System & Registry (NMLSR).

To ensure that you join the ranks of those who pass the national exam, you must do more than just know the industry. Extensive studying, solid time-management skills and gaining an understanding of how the exam is written and administered can help originators pass with flying colors.

Those who aspire to become mortgage loan originators must first be appropriately registered and licensed. If your career path directs you toward employment with a depository institution regulated by a federal banking regulator, you will only need to register with the NMLSR to start doing business.

If, however, you are destined to work for a company that is not a depository institution, you will need to register and secure a mortgage originator’s license from each state in which you wish to originate loans. As part of securing a license, aspiring originators must first pass a national licensing examination with uniform state content. The test, developed by NMLSR, is mandated by the SAFE Mortgage Licensing Act of 2008. Additionally, if you are pursuing a license from Arkansas, Florida, Illinois, Minnesota, South Carolina, Utah or West Virginia, you also will have to take and pass a state-specific examination.

Between April 1, 2013, and Dec. 31, 2015, only 65.8 percent of first-time test takers passed the national examination, according to NMLSR. Many people who fail the exam fall short because of inadequate test preparation. The national exam consists of 125 multiple choice questions. You will have a little over three hours to complete the exam, and you must score a grade of 75 percent or higher to pass. You will be informed of your results at the conclusion of your exam.

The national examination is broken down into five sections — although questions from each section will randomly appear throughout the exam. The five sections and their relative weights are as follows:

  • Federal mortgage-related laws, 23 percent;
  • General mortgage knowledge, 23 percent;
  • Mortgage loan origination activities, 25 percent;
  • Ethics, 16 percent;
  • Uniform state content, 13 percent.

Prepare well

Whether you are a seasoned mortgage professional or new to the industry, you will not pass the national exam unless you devote significant time to studying. The test content delves into many subjects that are not confronted by originators on a regular basis. If your plan, therefore, is simply to rely on your years of origination experience, you are most likely going to be seriously disappointed with your test results.

The preliminary education required to pursue a mortgage originator’s license, by itself, will not adequately prepare a student to pass the exam. Course providers are forced to cram over 70 hours’ worth of relevant material into a 20-hour course format. There is little possibility of an instructor adequately covering all of the necessary material within the allotted time frame.

To appropriately prepare for success on the test, you must allot appropriate time and dedication to studying. The most effective study strategy is to master all of the categories listed on the SAFE Mortgage Loan Originator Test content outline, which can be found on the NMLSR website. There you also will find the content outlines for the seven states currently requiring separate state-specific examinations.

The content outlines detail all the topics that you can expect to be covered on the test. They also contain reference lists of study resources that can be used in conjunction with the materials that you receive from your education-course provider. The bottom line is that if you want to pass the exam, you must allocate sufficient time and effort to studying the material on which you will be tested.

In addition, the test questions tend to be quite tricky. To overcome this, focused concentration and thorough comprehension is critical. Consequently, it’s wise to assure you are well-rested and clear-minded on the day of the exam. If there are distractions at home, or if the commute to the testing center may be stressful, consider securing accommodations near the testing center the night before your exam so that you can relax and take advantage of some last-minute undistracted studying.

You will have just over three hours to complete the exam. Even if you know people who have finished their exams in less than the allotted time, you should plan on using the entire time allotted for your exam. If you finish earlier, consider that extra time a bonus. If you enter the exam counting on finishing in less than three hours, however, it will likely create unnecessary pressure for you if you reach that mark and additional questions still remain.

Even if you are great at taking these types of exams, take the time to go through the tutorial. The tutorial provides important information that you may need to correctly answer questions or proceed through the exam. Skipping this could prove detrimental to your overall success.

Don’t be fooled

The questions you will encounter on the test will not be straightforward, so you need to understand the material and know how to apply it. No matter how simple a question seems, commit to reading every question-and-answer choice no less than two times before making a selection.

Imagine the following hypothetical question: At what equity position is private mortgage insurance (PMI) automatically removed?

  • A) 80 percent
  • B) 20 percent
  • C) 78 percent
  • D) 22 percent

You may recall learning that at a 78 percent loan-to-value (LTV) ratio, the PMI is automatically removed, assuming certain conditions apply. Consequently, “C” seems to be the right choice. The question, however, asks: “At what equity position is PMI automatically removed?” If you thought LTV instead, and answered as such, you would get the question wrong. The correct answer is “D,” 22 percent.

It can’t be stressed enough that the questions you will encounter on the exam will be worded in tricky formats. You may understand, for example, how to calculate a total loan-to-value (TLTV) ratio, but do you know how to derive the property value if given the TLTV, the outstanding balance of the first mortgage and the total amount of the home equity line of credit? Or perhaps you might be provided a monthly income, a total back-end debt-to-income ratio and the amount of nonhousing-related debt. Could you easily calculate the total housing expense from those figures?

Additionally, expect to encounter negatives and double-negatives in the question wording, such as the following: “Which of these is not a housing expense component?” Or, “Of the following individuals, who is not exempt from mortgage licensing?” Also expect to be presented with questions full of terms such as “everything but,” “other than,” or “all but which.” You must be able to quickly and accurately identify just what it is that the question is asking. By approaching the exam well-rested and clear-minded, and by reading each question and corresponding answers at least two to three times, you will increase your likelihood of answering those questions correctly.

Each question will contain an answer that is better than the rest, an answer that may be correct, an answer that is not correct and an answer that may try to trick you. The keys to successfully navigating this challenge are to know the material well, read each question and its corresponding answers more than once, and avoid overanalyzing the question. If you absolutely have to guess, try to eliminate one or two of the answer choices to improve your odds of guessing correctly.

Of the 125 questions that you will be required to answer, only 115 will count toward your grade. Ten will be provisional questions that count neither for nor against you. The purpose of these questions is to assess whether they should be used as real test questions on future exams. Because you will not know which questions count, treat all of the questions as if they do affect your overall score.

Should you encounter a question where you are completely certain that none of the answers is correct, do not panic. In this case, the question you are reading is most likely a provisional test question. Answer it as best as you can, and move on.

Other strategies

Although you must finish the exam within the allotted time, it may prove helpful to periodically stop and take a break. Walk around the room, drink some water, exercise by running in place or doing jumping jacks — something to refresh your mind, get your blood pumping and enhance your concentration.

Retaining a personal tutor to provide you with one-on-one personalized instruction also may prove to be a wise investment. Tutoring can be handled through in-person sessions or virtually — via web-based sessions. Your tutor can assist you in much greater detail than any 20-hour education course can, and instruction can be tailored to your personal learning style. Just be certain to do your research prior to hiring a tutor. You want to ensure that the tutor you ultimately retain is knowledgeable, experienced and competent.

• • •

Although 34.2 percent of first-time test takers fail the exam on their first attempt, and 53 percent of those who take it a second time also fail to make the grade, you do not have to be in either of those groups. By studying hard in advance of the test, assuring you go into the exam well-rested and with a clear mind, and employing smart test-taking strategies during the exam, you can significantly increase your odds of passing the NMLSR’s SAFE Mortgage Loan Originator Test on your first attempt.


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