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Thursday, March 24, 2016

Transitional Licensing for Loan Officers

QUESTION
I heard there is a bill pending before Congress related to transitional licensing for Mortgage Loan Originators (“MLOs”).  What does the bill propose to do and what is its current status?

ANSWER
Under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “SAFE Act”), MLOs employed by non-banks must be licensed in every state in which they originate loans. State licensing requirements are much more arduous than federal registration requirements in that they generally require pre-licensing and continuing education, a testing component, and criminal and financial background checks. Meanwhile, MLOs working for banks are exempt from individual state licensing requirements and may originate loans in any state provided they are employed by a federally-insured institution and register in the Nationwide Multistate Licensing System & Registry (“NMLS”).

Non-bank industry professionals have been advocating for a form of transitional authority to originate mortgages since the enactment of the SAFE Act. Transitional licensing would allow a MLO employed by a bank to move to a non-bank mortgage lender and maintain a valid license to originate residential mortgage loans for a period time while the MLO completes state licensing requirements. Many industry professionals have argued that transitional licensing would allow for a more level playing field in that it would permit non-banks to more easily recruit MLOs. Specifically, MLOs would be more willing to transition from bank to non-bank employment since their livelihood would not be disrupted and they would be able to continue to originate loans and receive compensation during the transition period.  

Currently, H.R. 2121 – SAFE Transitional Licensing Act of 2015 (“H.R. 2121”) is pending before Congress.  Introduced in April, 2015, this bill proposes to amend the SAFE Act by requiring states to issue a temporary license for 120 days to registered MLOs (1) moving from a financial institution to a state-licensed non-bank originator, or (2) moving interstate to a state-licensed loan originator in another state. These individuals would be able to continue originating loans during this time period when they move to a non-depository lender or to a new state.   

Recently, H.R. 2121 has made significant headway. In particular, on March 2, 2016, the bill was sent to Committee for review. The House Financial Services Committee unanimously approved the bill, which means it will advance to the next step in the law making process, which is the House floor. The Mortgage Bankers Association (“MBA”) has been a big proponent of the bill since inception. Its grassroots advocacy arm, the Mortgage Action Alliance (“MAA”), has been issuing Calls-to-Action to its members urging them to contact their representatives in support of the bill. Most recently, the MAA issued another Call-to-Action on March 16, 2016 advocating for broader support of the bill in order to ensure that it is considered by the full House. 

Michael Barone 
Executive Director/Lenders Compliance Group 
Director/Legal & Regulatory Compliance