In recent months, loan officers around the country have begun taking federally mandated licensing exams, which many in the industry consider beneficial for borrowers in the long run.

According to the Conference of State Banking Supervisors, which oversees the testing, 31 per cent of the roughly 10,000 people who took the national test from July 30 to November 30 failed it, and about 27 per cent did not pass the state-specific component.

The results may give pause to some borrowers in New York and New Jersey, which only recently began administering the exam, and in Connecticut, which won’t offer it until April 2010. If nearly one in three loan officers can’t pass the exam, how can borrowers enter the mortgage process with confidence?

“It’s a glass-half-full or half-empty question,” said Bill Matthews, the president of the state regulatory registry, a subsidiary of the Conference of State Banking Supervisors. “But I’d say this is a good thing for consumers in that it requires a level of proficiency.”

The exam is not required of everyone — only those who work for mortgage brokerages and lenders like Quicken Loans or Primerica. Employees of conventional banks like Bank of America and JP Morgan Chase need only register with the national mortgage licensing system, which is administered by the state banking supervisors.

Prospective licencees in 11 states began taking the exams on July 30, followed in late October by those in six more states and Washington. On December 10, New York and New Jersey started offering the tests, which feature roughly 100 questions in the national version and about 50 for the state version.

The exams are largely a response to the mortgage industry collapse, which according to some critics was a result of poorly qualified and unregulated loan officers’ providing loans to borrowers who had little chance of paying them off.

Test questions came in part from a pool of hundreds provided by industry executives and regulators. The four sections cover federal laws, general mortgage knowledge, the loan-origination process and ethics.

The content of the state exams varies, but in New York, for instance, there are sections on the functions of the state banking department; mortgage licensing requirements; practices barred and required by state law; and penalties for violations, among other things.

Applicants who fail the test must wait 30 days before they can try again.

If they don’t pass the test by the state-imposed deadline, they cannot lend in the state. (In New York and New Jersey, the deadline is July 31, 2010, and in Connecticut, the deadline date is yet to be finalised.) Licenses are renewed yearly. While loan offices need only pass the exams once, they must keep up with various continuing education requirements.

Thomas Pinkowish, an industry consultant and a co-chairman of the education committee of the Connecticut Mortgage Bankers Association, said prospective borrowers should not be shaken by the idea that one of three loan officers might not be able to pass the test.

“You could get 100 per cent right on the test and still give bad advice,” Pinkowish said.

“So while the test will make sure loan officers understand the technical aspects of mortgage lending, most consumers are going to assume they have that information, and evaluate their mortgage loan officer based on how well they serve them.”

Meanwhile, the National Association of Mortgage Rokers, an industry group, said its members’ failure rate on the exams was far below the 31 per cent rate cited by the Conference of State Banking Supervisors.

The organisation will conduct a more thorough statistical review of members’ test scores and report the results next month, said Jonathan Otto, a spokesman for the mortgage brokers association.