QUESTION
We are hearing that some states have
enacted legislation to allow for “transitional licensing” of out of state
mortgage loan originators. Can you please enlighten us on this topic?
ANSWER
This issue has actually been debated for
several years. In 2012, in response to state regulators’ concerns as to whether
states may, consistent with the Secure and Fair Enforcement for Licensing Act
of 2008 (SAFE Act), permit transitional licensing of mortgage loan originators
(”MLOs”), the CFPB stated that states may recognize the licenses of other
states and grant transitional licenses to out of state licensed loan
originators. However, the CFPB declared that similar authority for registered MLOs
did not exist, opining that Regulation H prohibits unlicensed individuals from
engaging in the business of a loan originator. Thus, as employees of depository
or other federally regulated institutions are “registered” as opposed to
“licensed” MLOs, states may not grant such individuals transitional
licenses. [CFPB Bulletin 2012-5]
The Economic Growth, Regulatory Relief,
and Consumer Protection Act (the “Act”) enacted in 2018, strived to level the
playing field between licensed and registered mortgage loan originators (“MLO”).
The Act amended the SAFE act to allow both registered and licensed out of state
loan originators to transition their employment to a new employer and still
have the ability to act as a loan originator without any “down time”. The intent
is to permit qualified MLOs to earn income by originating loans while
completing the testing and pre-licensure requirements. The law mandates that
states implement transitional authority by November 24, 2019.
Under the Act, a qualified MLO is
granted “temporary authority” when moving from a depository lender to a state
licensed mortgage company or when a state licensed MLO seeks licensure in
another state. The transitioning MLO must be employed and sponsored by a state
licensed mortgage company. The individual has temporary authority to act for a
period of 120 from submission of the MLO’s application together with required
background check information through NMLS to complete the process to become a
licensed MLO in that state.
For more information on this topic, see
the "NMLS FAQs" at NMLS FAQs. (PDF)
Joyce
Wilkins Pollison, Esq.
Director/Legal & Regulatory Compliance
Executive
Director/Lenders Compliance Group
