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Thursday, September 4, 2014

Transferring a Loan Officer’s Pipeline

QUESTION 
Our company (“Company B”) offered a loan officer a position in our company. He had worked for a competitor (“Company A”). The loan officer has loans in his pipeline at this former employer and wants to bring them to our company. While he is licensed in the states where the loans in the pipeline were originated, it takes several days to transfer the loan officer’s status in the NMLSR to a new sponsored entity. During this time that the transfer of sponsorship is pending, how would you suggest we handle the pipeline loans?

ANSWER 
There are many issues to consider in this scenario. 

Make sure the affected borrowers are notified and have consented to the proposed “transfer” of their loan files - prior to the pipeline being moved. Failure to do so would be a violation of many regulations. A record of an affirmative withdrawal from Company A to Company B should be established in order to protect the company as well as the loan officer.

In this situation, the loans in the pipeline would technically be treated as “withdrawn” from Company A and would need to be set up as new applications by Company B. This would require the GFE, TIL and all other required disclosures to be issued within three business days.  No personal information may be transferred from Company A to Company B without the borrower’s written consent; to do so would violate federal and state privacy laws.

Another area of consideration is the stage of processing of the individual applications in the pipeline. Regulators would not look favorably on any situations where the consumer was negatively impacted by delays in closing or any other issues resulting from the “transfer” (i.e., the borrower having to re-lock at a higher rate or having to pay duplicate fees). Consumer complaints arising out of this situation could result in restitution, civil monetary penalties, and formal state banking department administrative orders, depending on the extent of consumer harm.

Lastly, Company B must make sure that the loan officer does not engage in unlicensed activity before being sponsored by Company B. Any activity that meets the definition of Mortgage Loan Originator by the incoming loan officer, prior to sponsorship, would be deemed “unlicensed activity.”

While these issues exist today, in order to provide uninterrupted service to the consumer, regulators and industry are working together to come up with solutions that would allow expeditiously transferring loan officers’ NMLSR licensing credentials.

At this year’s recently held conference of the American Association of Residential Mortgage Regulators, the NMLS Ombudsman, Robert Niemi, Deputy Superintendent for Consumer Finance, Ohio Division of Financial Institutions, posted an agenda that had some related topics, including the process for approving sponsorships of loan officers, uniform testing standards for all loan officers (including depository registrants), aligning HMDA and the Mortgage Call Report (MCR) Data Requests, and a variety of sponsorship Best Practices.

These Best Practices include timing of approving sponsorship of a loan officer who is in transition between employers on the same day, the effect on the license between sponsorships, and the concept that the loan officer could be kept in an active status so that consumers may continue to be served - provided that there are no pending material issues with the license. 

Alan Cicchetti
Director/Agency Relations
Lenders Compliance Group