New Federal Law Affects Loan Originators

On July 30, 2008, President Bush signed into law the S.A.F.E. Mortgage Licensing Act of 2008. It was part of the Housing and Economic Recovery Act which is designed to help homeowners caught in the foreclosure mess. The S.A.F.E. Mortgage Licensing Act is designed to regulate loan originators and start a nationwide scheme of loan officer licensing.

Some of the provisions of the new law are:

1. All loan officers will be part of the Nationwide Mortgage License System (NMLS);
2. The NMLS will create a unique identifying number for each loan officer that permanently identifies the loan officer;
3. All loan officers will have to be registered or licensed in their states and maintain their registration or license in order to originate mortgages;
4. All independent contractor loan officers must be registered or licensed;
5. In order to get licensed, loan officers must submit to the NMLS fingerprints, a personal history and experience report;
6. The NMLS will run criminal background and credit history checks on each loan officer;
7. In order to get a state license, a loan officer must:
a. never have had a license revoked in any jurisdiction, have had no convictions, pled guilty or no contest to a felony in any court for the past 7 years or at any time in the past if the felony involved fraud, dishonesty, money laundering or breach of trust;
b. show good character an financial responsibility;
c. completed 20 hours of pre-licensing education;
d. passed a written test;
e. met a net worth requirement, paid into a state fund or obtained a surety bond.

8. In order to renew a license, loan officers will need to complete at least 8 hours of continuing education credits.

All states are going to have to create new procedures to comply with the new federal law. Stay tuned for more information as the states roll out their implementation requirements.

Post-Licensing Requirements

Although the licensing process is the one that all mortgage companies focus on in terms of compliance with state banking regulations, in many states, there are ongoing requirements to remain in compliance with state law and regulation.

Most states require the filing of an annual report each year. The report can be a simple one, asking only a few questions about number and total dollar volume of loans brokered, originated or serviced. Or it can be pages and pages of questions regarding information regarding the company’s financial situation, appraisers and title insurance companies used, and the license numbers of lenders who closed the brokered loans. Delaware requires a report twice a year. Massachusetts and New York require their licensed lenders to file quarterly reports. Failure to file the necessary reports can lead to fines and a refusal to renew a license.

Georgia raises money for its banking department budget by charging $6.50 for each loan closed. Typically, the lender pays the fee but both lenders and brokers are required to file the report stating how many loans were closed.

Those states that require a minimum net worth usually require that the licensees submit audited financial statements every year. Sometimes, it is part of the annual report process, in other states, the financials get submitted separately from the annual report.

Florida requires quarterly reporting of new loan officer hiring and firing. Many other states require annual updates of who your company’s loan officers are. This may be separate from the renewal of mortgage originator licenses.

And always keep in mind those continuing education requirements. Each state has a different number of required continuing education hours and a different timeframe within which they must be completed. If you are licensed in multiple states, you need to take the required number in each state and there is no overlap.

As you can see, getting your license is just the beginning of the work it takes to stay in compliance to keep the license.