Common NMLS Licensing Issues

We're doing CE in every state that requires additional NMLS hours from the original eight [federal hours], and this year we focused heavily on licensing.

So I have been reading every state's licensing requirements. And it is exhausting, and it also is interesting how many of them just copy/pasted the SAFE Act into their actual regulation. The reason we're focusing on licensing right now is because it is a monster violation that's happening all the time. If you guys were to look at the most common violation for an otherwise ethical originator to accidentally do, it would be licensing violations because you might be super ethical but you just accidentally did something wrong. Or in this case, you were just trying to be a buddy and you violate it. And so we're focusing heavily on licensing to make sure that you guys know what your license is and how important it is that you treat it right, that you're doing things the right way.

So let me give you just a few things to remember when you're dealing with licensing.

The first one is as a licensed loan originator, you're able to do loans. If you are not a licensed originator, you're not allowed to take the loan application. You're not allowed to do other licensed-based things. So you can't offer or negotiate terms of real estate or residential mortgage loans. So by that, I mean borrower calls you up. You're the processor or you're the loan officer's assistant and you're not licensed. Borrower calls and says, "Hey. I know we went Fannie Mae on this loan, but can you look at maybe what an FHA deal would be and then tell me what that rate would be?" You can't. You can't answer that if you're not licensed because that would be acting as an originator. So in any state you look at, just that piece is going to be acting as an originator.

Therefore, you need a license. So you need to be really careful that you have very clear job descriptions that limit you in what you're able to do if you don't have a license. So taking a residential loan application which, I mean, somebody handing you the residential loan application like, "Here you go," and you walking them through filling them out at all, that's all licensed activity and should not be done by somebody who's not licensed. So that's the first big one is just make sure that those are clear, that the job roles are clear, and that you never cross a line if you are not licensed. If you are licensed, watch to make sure nobody's crossing that line because your name is on the 1003. I think people forget how important it is that they are the boss of everything that goes on to that 1003 when they're the ones who signed the bottom of that. So remember to watch out for that type of unlicensed activity if you are a licensed loan originator.

The second thing I wanted to talk to you about is loaning out your license. This happens all the time. I can show you case after case after case in all the different states where they found somebody loaning out their license. And what I mean by that is I have a license, my buddy, Max, doesn't. And so my buddy Max wants to do a loan in Washington where I'm licensed. He's licensed in Oregon. And so he refers me a deal. But he's talking to the borrower and negotiating terms with the borrower, took the residential loan application from the borrower. In that case, I'm putting my name on a loan as the licensed originator. However, I did not originate that loan. It was done by Max. All the work Max did on that loan that I've signed on was illegal origination. And in a lot of the states, they deal with aiding and abetting somebody for doing unlicensed activity. So I've now supported Max in his ability to do that loan. I'm guilty. So beware of anybody asking you to just throw your name on something because they're not licensed. They can't originate at all in that loan. That is just completely yours. You get to do the originations. You make the money and tell them, "You'll get them next time." No. Just kidding. Don't do that. And you'll just let them know, "Hey. Thanks. I'll take care of them." That's what you should do. As an originator, you only put your name down on loans that you originate. It's just safer that way.

One other area of licensing that we see people mess up all the time is the advertising piece. When you guys are advertising, that's called holding yourself out to be able to originate loans. So if your Facebook page says loan originator, you need a license. Therefore, your license number would need to be there as well. Any sort of blog that you write for, anything where you're saying, "I can do loans," you need to have your NMLS ID number out there. If you are not licensed, do not advertise as if you are. Now, sometimes this can get really weird where you've got a whole team is being marketed. And it's like, "The loan officer, processor, loan officer assistants. Look at our team!" Just make sure that it's clear that it's actually the one person who is the licensed originator and people don't think that they can call all of the other people. It's not implying that you can call any of us and we can answer your questions. It should really feature that loan officer so the loan officer who's licensed is the one that's holding themselves out to be able to originate loans. We also encourage disclaimers below that just to say, "By the way, one person in this ad is licensed and that is so and so, and he'll take your loan application or she'll take your loan application." So it's something for you to focus on.

One other area we see people messing up is in their renewals. And I can show you a lot of cases, again, where somebody went to get their license renewed, and answered all the questions on the form, and they answered one incorrectly. And I can show you in all those cases, or most of those cases, that loan officer lost his or her license. Typically, this happens where somebody files bankruptcy or has some sort of giant credit concern, a foreclosure or something like that. Or they moved offices too. That one happens all the time. In every state, they've got a certain amount of days that you have to notify them when something big happens. Typically, and really SAFE Act requires it's no more than 30 days from the time of the occurrence for the time you report, but some states require you to report within 5 days. So no matter what, if you have a bankruptcy that has been filed, a judgment against you, things like that, credit issues, check the states where you're licensed, see how fast you need to deliver it to them, and then get them that information as fast as possible. If you don't and you wait until the end of the year and you report it, they'll look back at you and say, "Well, why didn't you report that when it happened as required by law?" And then now, you're dealing with an enforcement action from the state potentially or a consent order. So make sure that you notify them immediately upon doing that. And then also, the biggest mistake you can make is just to lie about it by omitting from your check boxes at the end of the year. When you go to renew your license, and it's like, "Has any of this happened?" and you're like, "No, not at all." They're going to find out. And when they do, they'll walk in and they will just revoke your license. Part of the SAFE Act says that if your license has ever been revoked in any state ever, it's revoked in every state forever.

So you basically by checking that box or not notifying them that you had some credit event that you were required to notify them of, that's called lying to the state, and by doing that, you could lose your license to originate ever again. And for most of you, I mean, this is the way that you make 100% of your living, and you don't want to give that up over a check box. My recommendation to you is before you end up in that bankrupt situation, as you're dealing with credit issues, or you see something on the horizon, especially if it's medical related because so many states are flexible on medical collections, call your state regulator, or talk to your compliance officer first and make sure that's what they want you to do. But check in with your state regulator and say, "Hey, what would happen if somebody came to you and said they filed bankruptcy?" Get them to give you that feedback, and then don't be like, "Okay. Nevermind." But you want to just get them involved early because a lot of states we work with, if you just bring them in early, they want to be part of the conversation because they really do want to help you guys. The states aren't just out to get you. Most of them are very kind, and they want to walk you through the process, especially if you're going through something painful. Bring them in early. The worst thing you could do is lie to them. Same thing on convictions. So if you get a felony this weekend, make sure that you report that. Those types of things where you go to renew your license and you lie about it are just automatic, "Get out of my business. You're done here."

So what have we covered so far? Unlicensed activity. Watch out for people who want to borrow your license. Watch out for anybody that's collecting too much information, negotiating terms, especially if they're on your team. Make sure that you're answering everything on renewal questions. And then finally, you're still a licensed entity in the NMLS if you work for a state-licensed organization. There are still banks that are federally registered, and they are still not required to be licensed. So remember that. If you have somebody that is working for a bank that comes to work for a mortgage company that's licensed, they need to get that work done to get their license, which includes being sponsored by the company that is actually bringing them under because your license needs to have a sponsor inside the NMLS. Make sure that all that work is done before that person does any sort of origination activity. Any sort of transfer from one company to another, whether it's registered to licensed or licensed to licensed, there's a way to do it right, and there's a way to do it wrong. You need to make sure that you do it the right way, that you've got the new sponsoring loan origination company already sponsoring you in the NMLS before you start working for them, using their NMLS ID number, putting your name on 1003's, funding loans. Don't do that when you're not licensed to do that. Sometimes in that gap where you cancel your license with one company and you bring your license on to another company, if there's a gap at all and you do any origination in that gap, it can be a problem.

The deal is this. A lot of states are starting to call borrowers. When they call borrowers, they say, "How did Bob do?" And they go, "Bob? I don't know Bob." And they're like, "Well, who did your loan?" And they're like, "Joe." And Joe doesn't have a license, Bob's name's on the 1003, and the state just busted you.

That's how states are figuring it out, that and disgruntled employees. When they leave, they just call the state and go, "Hey, they've got 15 people operating in your state illegally," and that just triggers all kinds of enforcement. I cannot stress enough to watch out for this. This is what we're seeing in so many of the states that we do business in. When you look at their enforcement orders, you just see one after another of unlicensed activity. And they are kicking people out of the business. So be very careful.

This is your license. Don't mess it up, and have a good day.

Additional Reading:
Mortgage Loan Origination Activities: Are You Licensed for That?