Will Your Mortgage Loan Originator's Criminal Record Prevent Him From Getting Licensed?

The SAFE Act requires all mortgage loan originators (MLOs), also known as loan officers, to create a record that will become part of the Nationwide Mortgage Licensing System (NMLS) registry. Part of the record deals with disclosures about an MLO’s criminal background. To verify the information that the MLO is providing in his NMLS record, the SAFE Act requires criminal background checks for all loan officers.

The questions asked in the NMLS MU4 record concern criminal convictions for a felony, pleading no contest to a felony, pleading guilty or no contest to a misdemeanor involving a financial-services crime, fraud, theft, perjury, forgery, or having control over an organization that pleaded guilty or no contest to these dishonesty crimes.

Questions come to me from loan officers who have been pleaded guilty to drunk driving, to issues when they were stockbrokers, to juvenile crimes that have or have not been expunged from the record. These loan officers ask me what to do and whether these past issues are now a current problem.

I cannot counsel anyone who is not my client so I will not give specific answers in this blog. My general advice is, when in doubt, disclose and explain. Many times criminal convictions that should have been expunged will somehow show up in a criminal database. If you decide not to disclose and the conviction or no contest plea shows up, you look like you are trying to hide something. I always fall on the side of honesty and disclosure.

When you disclose your conviction or no contest plea, the licensing reviewer may have some discretion to still approve your license application, depending on the type of crime and when the conviction or no contest plea happened. The SAFE Act has explicit disqualifiers for license approvals. The SAFE Act prohibits the licensing of an MLO if the applicant has ever been convicted of a felony involving an act of fraud, dishonesty, breach of trust, or money laundering, or convicted of any felony in the seven year period before filing an application for a license. If you are outside of the seven year period, you should be fine.

Contact Robin Gronsky at Robin@Mortgagelicensesolutions.com if you need help with your licensing (company or MLO). I’ll keep what you tell me confidential but I cannot give you any specific legal advice until you become a client of the firm. This is done by written agreement only.

Can You Lose Your Ability to Earn a Living If You Have a Criminal Conviction?

When I started doing mortgage broker/lender licensing over 10 years ago, very few states licensed their loan officers. Now, as a result of the federal SAFE Act, every state will be licensing loan officers by July 31, 2010. Some of the states which licensed their loan officers asked about arrests and criminal convictions when you applied for a license, others did not. Even in those states that asked about criminal convictions, there was a lot of leeway for license application reviewers to use their discretion about granting the license depending upon what kind of crime was involved or how long ago your conviction took place. Now every state will ask about your criminal background and require you to submit fingerprint cards to verify that you do not have a criminal conviction.

After the subprime mortgage mess revealed many instances of mortgage fraud, it came to light that there were thousands of loan originators who had criminal records. Some of the criminal convictions were for fraud, embezzlement, writing bad checks and identity theft. The SAFE Act attempts to address this issue by prohibiting anyone who has had a felony conviction within the last seven (7) years or who was convicted of a felony involving fraud, dishonesty, breach or trust or money laundering. Some of the states, in writing their own laws to implement the SAFE Act, have been more stringent in their desire to weed out possible bad apples. Those states have simply prohibited any person from getting approved for a loan originator license if that person has a felony conviction of any type, no matter how far in the past that conviction was.

So, if you were a loan officer in a state that did not inquire about criminal convictions or your felony conviction was for drunk driving or possession of some pot when you were 20 years old, you may have been closing mortgages for 5 or 10 years with no problem. Now, once your state implements the SAFE Act, depending on how strict they want to be, you may not get past the application that needs to be submitted through the Nationwide Mortgage License System. If you indicate that you have been convicted of a felony, the application process might stop right there. And you are now out of a profession. There is no room for leniency or discretion by the state regulators.

So, if you are an employer, be aware that you may be losing some of your loan officers once the SAFE Act comes to your state. If you are a loan officer, I am sorry to say that a felony conviction is one mistake in your life that you may not be able to correct.

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