If you want to be a hair stylist in the state of Georgia, you have to graduate from a cosmetology school or complete an apprenticeship program, take and pass an exam, pay fees and complete five hours of education every two years.
Let’s say the law changed and if you worked for a large chain salon you no longer had to be licensed. No more exams, fees or continuing education. You are doing the same job as someone in a small independent salon but requirements are different for you. That hardly sounds fair, does it?
That’s pretty much the situation when it comes to mortgage loan originators (MLOs). When the Secure and Fair Enforcement for Mortgage Licensing Act, S.A.F.E. Act, was signed into law in 2008, it standardized the process of registration and licensing for all MLOs, new and existing, in an effort to enhance consumer protection and reduce fraud. All MLOs, regardless of where they work, must be registered with the Nationwide Mortgage Licensing System. (NMLS)
If an MLO works for an FDIC insured bank or savings and loan, a subsidiary, or an institution regulated by the Farm Credit Administration that is as far as their requirements go under the S.A.F.E. Act.
However, all other MLOs must get a state license for each state where he or she originates loans. That process includes a background check, 20 hours of pre-licensing curriculum, eight hours of continuing education a year and passing state and national exams. And in the state of Georgia, for example, fees to become licensed run more than $1,000. Same job, different requirements.
And let’s say you were an MLO working for a bank, but you were contemplating a job change and wanted to go work for a non-bank lender. Because you are going from a position where you don’t need a license to one where you do, you’d have to take steps to be licensed. But your bank can monitor the NMLS to determine if you or any other of its loan originators are taking the state licensing education courses or had taken one of its tests. And if your name shows up, well, you might as well start cleaning out your desk.
But there is good news on the horizon. The Conference of State Bank Supervisors (CSBS) recently announced that as of July 2012 a bank would no longer be able to use the NMLS to determine if one of its loan originators has done the required state licensing education or taken its tests. That information will be blocked from the bank’s view.
E. Robert Levy, Executive Director of the New Jersey Association of Mortgage Brokers, informed its members of the upcoming change. He also wrote that CSBS representatives said they were going to address “de novo licensing,” which would allow an individual to obtain a mortgage loan originator state license even if he/she is not yet sponsored, a current requirement. (The originator would not be able to originate loans until sponsored, however.)
What these two developments mean is that MLOs now employed at banks will have the freedom to complete the education and testing through the NMLS and become a non-sponsored licensee without the bank knowing of their plans and letting them go.
Issuing transitional state licenses for these MLOs would take that process one step further. Richard Cordray, Director of the Consumer Financial Protection Bureau, (CFPB) recently wrote that although there may be movement toward transitional licenses, for now the S.A.F.E. Act “does not allow states to provide for transitional licensing for registered loan originators who leave federally-regulated institutions to act as loan officers while pursuing a state license.”
I look forward to the day when all Mortgage Providers (Bank and Non-Bank) MLOs play by the same rules, no matter where they work. But at least for now, steps are being made toward having the same rules apply for everyone which ensures consumers have the same protection as originally intended by our Government. The S.A.F.E. Act was created to protect consumers and therefore should be applied consistently.
Cal Haupt, President and Chief Executive Officer, Southeast Mortgage