Mortgage Loan Origination: Who Needs a License?

The SAFE Act requires loan originators to be licensed. But what does that mean exactly?

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Who Needs to Be Licensed in the Mortgage Industry?

Anyone who engages in the business of a loan originator will need to be licensed.

Engaging in the business of loan origination means you:

  • Take residential mortgage loan applications,
  • Offer or negotiate terms of a residential mortgage loan for compensation or gain,
  • Hold yourself out to be or advertise that you can or will take a mortgage application or negotiate mortgage terms for compensation, or
  • Are an independent contractor who acts as a loan processor or underwriter for residential real estate.

What does it mean to "take a residential mortgage loan application"?

A person "takes an application" if you receive a residential mortgage loan application for the purpose of facilitating a decision whether to extend an offer of residential mortgage loan terms to a borrower or prospective borrower.

What does it mean to "offer or negotiate terms of a residential mortgage loan for compensation or gain"?

If you do any of the following, it means you’re offering or negotiating terms:

  • Show residential mortgage loan terms to borrowers or potential borrowers for their consideration,
  • Communicate with borrowers and prospective borrowers regarding residential mortgage loan terms with the goal of gaining the borrower's business,
  • Guide borrowers and potential borrowers toward specific lenders or residential mortgage loan terms with someone other than the borrower offering you incentives to do so, or
  • Receive any payment as a result of a borrower entering into residential mortgage loan terms.

Who Does Not Need to Be Licensed in the Mortgage Industry?

You are not required to be licensed under the Federal SAFE Act simply for working for a mortgage company, unless you’re performing origination activity, which we’ve described above.

There are many job roles at a mortgage company that, in most states, do not require a license. This generally includes processors, underwriters, and assistants who are not involved in offering or negotiating loans.

Some states, however, have more stringent guidelines regarding who must be licensed, requiring more job functions to hold a license. Check your state's requirements to determine whether you do or do not need to be licensed to work in the mortgage industry.

What Does It Take to Get a Mortgage License?

Mortgage licensing is overseen by the Nationwide Multistate Licensing System, generally referred to as the NMLS. The NMLS issues licenses to prospective MLOs who meet the requirements.

MLOs are required to do the following before obtaining a license:

  • Show financial responsibility, character, and general fitness. It is expected that MLOs will demonstrate financial health at a level that the community can have confidence in them and that they will operate in an honest and fair manner, according to the standards of their respective states.
  • Complete, at a minimum, 20 hours of pre-licensing education. These courses must be approved by the NMLS. Many states also have additional state-specific pre- and post-licensing education requirements.
  • Get a score of at least 75 percent correct answers on the NMLS' written test. This is part of 12 U.S.C. 5105(d). States also require a test specific to their laws or give the Uniform State Test (UST).
  • Receive coverage through either a net worth or surety bond. Alternatively, you can pay into a state fund as required by state regulators.
  • Submit fingerprints to the NMLS for an FBI state and national criminal history background check.
  • Submit an accurate and thorough personal history and experience document to the NMLS that includes:
    • An independent credit report
    • Any information regarding administrative, civil, or criminal findings in any jurisdiction
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What Can Impact Your MLO Licensing Eligibility?

To be eligible for a loan originator license, there are a number of requirements you must meet. If you have done any of the following, you will not be able to get an MLO license:

  • Had an MLO license revoked anywhere in the country. That's right—if one state takes away your license, you can no longer get a license in any other state. The only exception to this rule is if the revocation was formally vacated.
  • Been convicted of, pleaded guilty or nolo contendere to a felony during the seven-year period before the date of application for licensing.
    • This is broader if the felony involved fraud, dishonesty, a breach of trust, or money laundering. No timeframe applies in these cases and any of these charges can affect your licensure eligibility.
    • Expunged or pardoned convictions do not necessarily affect your eligibility.
    • Note that whether a crime is considered a felony is based on the law where the crime was committed.

How Do You Renew Your Mortgage Loan Originator License?

If you want to meet all the requirements to renew a loan originator license, you must meet all minimum standards established for initial licensure and complete all required professional NMLS-approved continuing education (CE).

Required CE includes a minimum of eight hours of NMLS-approved CE each year. You may also need to complete additional continuing education hours as required by your individual state.

You are only permitted to receive credit for a continuing education course in the year you take the course. So you may not take a course one year to meet requirements in the next year. You also cannot repeat taking a course to meet minimum requirements. The NMLS also uses a "successive year rule," which means you can't take the same CE course two years in a row.

If you are an instructor of an NMLS-approved course, you can earn credit toward the continuing education requirement. Every one hour of teaching is equivalent to two hours' credit toward that requirement.

Note that if your MLO license lapses and is not renewed for five years or more, your original test results will no longer be valid. This means that you’ll have to take and pass all relevant tests again to regain your MLO license.

What Else Should You Know About MLO Licensing?

To obtain an MLO license, you need to have a sponsor that’s an NMLS-licensed entity. Your sponsor will have access to your profile and bears the responsibility for your actions.

Updating your information with the NMLS is mandatory. If the information on your MU4 form is no longer accurate, you have 30 days to update the information. You must submit your new information via the NMLS.

Your sponsoring entity is not allowed to change your information unless you provide consent. So if they revise your MU4 form, you have to provide an attestation before the info is sent to NMLS.

You shouldn't ignore the disclosure questions on MU4 forms. In fact, many people have had licenses revoked because they provided inaccurate responses to these questions. As we mentioned earlier, revocation in one state means you won’t be allowed to apply for a license in any other state, which means game over!


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