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Thursday, January 5, 2017

Loan Officer Pipeline Transitions

We parted ways with one of our Loan Officers today. We have a new loan officer who will be taking over his pipeline but are awaiting his license. In the interim, I will be handling his pipeline since I am still licensed. I seem to remember at some point in the past that when a new Loan Officer was taking over an existing application, the borrower had to be notified in writing about the change with the new LO’s phone number and RMLO number. Can you confirm for us what our requirements are here? I appreciate your help!

Yes, you probably need to notify the borrower of the change in loan officers, even if the change is only temporary. The need to provide such notice to the consumer under existing regulations is fairly straightforward. Under 12 CFR 1007.105 (Regulation G), the implementing regulation for the SAFE Act, a registered mortgage loan originator “shall” provide his or her “unique identifier” to a consumer…”before acting as a mortgage loan originator. …”  The regulation states:

§1007.105   Use of unique identifier.
(a) The covered financial institution shall make the unique identifier(s) of its registered mortgage loan originator(s) available to consumers in a manner and method practicable to the institution.
(b) A registered mortgage loan originator shall provide his or her unique identifier to a consumer:
(1) Upon request;
(2) Before acting as a mortgage loan originator; and
(3) Through the originator's initial written communication with a consumer, if any, whether on paper or electronically. (Emphasis added.)

The Appendix to §1007.105 contains detailed examples of mortgage loan origination activities that constitute “acting as a mortgage loan originator.” As a substitute loan officer, you would most likely perform at least one of these activities.

Whether this notice to the consumer needs to be in writing is not clear. In the commentary accompanying the original version of this rule jointly issued by the OCC, Federal Reserve, FDIC, OTS, FCA, and NCUA, it is specified that the notice can be given “in a manner and method practicable to the institution.” That language is carried forward in subpart (a) of §1007.105, which is the portion pertaining to a covered institution’s duty to make the unique identifiers of its registered mortgage loan originators available to consumers, but is not specifically mentioned in subpart (b), which deals with the disclosure obligations of individual MLOs. Prudence would indicate, however, that to make sure there is a record of compliance with the Rule, providing the notice in writing is essential. Individual states may prescribe additional requirements or even specify the form of any such notice.

In addition, under the 2013 amendments of TILA, 12 CFR 1026.36(g) (Regulation Z) the name and unique identifier of the mortgage loan officer must be included in the “loan documents,” including the “note” and “security instrument” when they are signed. Since those documents are not normally signed at the application stage, you would most likely be the person who would need to be identified as the loan officer on the “loan documents” issued at or near closing.

The commentary makes it clear that the lender does not need to go back and re-issue loan documents if the identity of the MLO changes during the application process. But any documents issued after the change has been made should reflect the change. This would need to be in writing. Again, however, there is no prescribed form, except that the GSEs are now requiring the name and NMLS identifier appear on their documents such that, if you use their documents, the disclosure will need to appear in the place provided for on their documents. This is a highly technical area, so if you have any questions, please do not hesitate to contact us.  

Michael R. Pfeifer
Director/Legal & Regulatory Compliance
Lenders Compliance Group