Mortgage Loan Origination Activities:
Are You Licensed for That?

Part 1

Part 2

Part 3

Video Transcript

Back in the old days, it was really easy to work in the mortgage industry and have all the conversations you wanted because most states did not have licensing. In fact, I remember the first license I ever had to get was a Wisconsin license. They had their own state license. And as a loan officer who did business in many different states, I had to get a Wisconsin license. So I was like, "What is this?"

Then I had to go take a test. And basically, anybody that called us-- and I worked in California. Anybody that called in from Wisconsin, we got a referral from Wisconsin, or whatever, it would have to go to one of the licensed Wisconsin people which I thought was great because I was one of four people to have the license. But back then, that was the only state we had to worry about. And now, it's every state.

And it really happened when the SAFE Act was passed. And the SAFE Act was a federal law that required every state to require licensing of their people. So it's a federal law that required the states to create their own law. So when you're looking at the SAFE Act, you're looking at each state's SAFE Act and each state's decision on what does it mean to originate loans? Well, most states took at least the basics of, "What does it mean to originate loans?" They took those as the baseline and then many states have added on to those. And the reason I'm bringing it up with you is because I think we have some unlicensed activity going on in mortgage companies all over the United States because when you read what it is to be an originator and need a license, it's pretty small. It's pretty easy to accidentally do origination activity. So I want to give you those few things that would make you need a license so that you're doing it correctly and that you can talk to borrowers with a license and be confident. And without a license, you know where the line is where you really need to back off and get a licensed individual involved. Now as I go through these things, I will tell you that a lot of the companies that we work with aren't just using this as their standard. They're going above and beyond. Because it's so easy for somebody to need a license or to do unlicensed activity, they require everybody who talks to borrowers to have a license.

And we really like that. It's just an easy way to make sure that you don't ever do unlicensed activity. And some states look at that and say, "Yeah. You're talking to borrowers. You do need a license." So it's a good thing to do to say, "Whoever talks to the borrowers needs a license."

But, let me break down a couple different things in the definition of loan originator or what you would need a license for. I'm going to break down those things and try and give you enough so that you know where that line is.

The first thing is if you're taking an application. This one came up big in a conversation I recently had with one of my clients where they said that there is a coaching company that's telling people, "Hire an assistant to take all the applications for you." And that assistant, in many cases, isn't a licensed person. That, I have huge concerns over. So let me give you what the SAFE Act calls taking an application that would need a license.

It says, "Receiving information provided in connection with request for a loan to be used to determine whether the consumer qualifies for a loan." So if you're in that qualification process-- this isn't getting W2s to find out if they actually make what they said they make. This is if they want to get qualified, and you're receiving information provided to get them qualified. Well, a lot of those loan officer assistants, that's what they do and that's why a license for them makes a ton of sense and would make them doing this legally. Taking that information we better understand when it says, "Even if the employee has received the consumer's information indirectly in order to make an offer or negotiate a loan is not responsible for verifying the information, is inputting information into an online application or other automated system on behalf of the consumer, or is not engaged in approval of the loan including determining whether the consumer qualifies for the loan." So even if none of those things exist, just taking the information is licensed activity and you need a license. So if you don't have a license, you're not going to sit down with a borrower and have them fill out an application form with you because you're not the licensee.

You're not going to have them send you information so that you can review for creditworthiness. So you're talking to a friend. Your friend says they want to get a loan. You're not going to go, "Well, let me take a look at your information. Send it over. I'll collect that and we'll be able to get back to you." That's license activity. Say that the loan officer will get back to you, that's a totally different thing. So you're not collecting the information. That would be taking an application. So also, it does not include-- so let me give you the things you can do. It does not include contacting a consumer to verify the information in the loan application by obtaining documentation such as tax returns or payroll receipts. So the borrower sends things in. You're just verifying that you've received it. That's basic processing activity.

It also doesn't include receiving a loan application through the mail and then forwarding that on without review to loan approval personnel. Borrower sends something in, you're like, "Oh, this is for the Smith file." Boom. And you hand it over.

That's not taking application. By the way, that one's big because when they originally wrote the SAFE Act, there was a concern because they didn't have this in here. So if your borrower dropped off something, just handing it to the front desk person, the front desk person would need a license to take that. And so they wrote that in, just forwarding mail is fine.

Assisting a consumer who's filling out an application by clarifying what type of information is necessary for an application or otherwise explaining the qualifications or criteria necessary to obtain a loan product. Now, this is one you need to be careful with. So the borrower calls up and says, "What are the requirements of an FHA loan?" And you say, "Oh, well, here's your required-- FHA requires X amount down." Now, that's just letting them know a product, a piece of product information. You're not determining whether they qualify for it. You're just explaining the qualifications or criteria. You're processing a loan, the borrower calls up and goes, "How much money do I need to bring in again?" Just telling them is not negotiating the terms of the loan. However, on this one, you need to be really careful because when a processor talks to a borrower or an assistant talks to a borrower, it potentially leads into further conversations where it's like, "Well, I thought we were doing Fannie Mae. Is this FHA or Fannie Mae?" And now, all of a sudden, you start negotiating terms of that loan, and then you need a license for that. So be careful.

Also, when you wouldn't need a license would be in response to an inquiry regarding a pre-qualified offer that a consumer has received from a covered financial institution collecting only basic identifying information about the consumer and then forwarding that to a loan originator. So the borrower calls up, "Hey, I'm making an offer on a house. Here's what I need." You collect the information. You say, "Great. Let me get that to the loan officer. They'll give you a call back." Again, be very careful because you don't want to just fire out information. This is hardest for those that are more expert at their job.

If you already know, as a processor, what they're going to need and whether it's going to qualify, that's really hard to not say that, to be like, "I'll have a loan officer call you." And so if you're really that expert in the business, get a license. And that way, you can have that conversation. Finally, receiving information in connection with a modification to the terms of an existing loan. So you're just collecting information for a modification to a borrower as part of the covered financial institution's loss mitigation efforts. So basically, this would be a company that does a lot of servicing, and they're collecting information to send in to find out if that's something that would work for a modification. So if you're saving a borrower from default by helping them and you're just collecting that information, that has an exemption as well.

Now, let's get into the second thing which is offering or negotiating terms of a loan. Just like taking an application, offering and negotiating terms of a loan has very specific things that are covered here. So presenting a loan offer to a consumer for acceptance either verbally or in writing, including but not limited to providing a disclosure of the loan terms after application, under the Truth in Lending Act, would qualify for offering and negotiating terms. So just presenting those terms, you need a license for that. So even if further verification of information is necessary, so even if you need more information, still, you can't do it. Even if the offer is conditional, even if other individuals must complete the loan process, still, you would need a license. Or only the rate approved by the covered financial institutions loan approval mechanism function for a specific loan product is communicated without authority to negotiate a rate. So you call up and you say, "Hey, good news, we've got an approval through our system." Even that, we need a licensed originator to do. So offering and negotiating terms, really big, and this is where a lot of branch managers fall into it. Branch managers, many times, you need to be licensed as well. There are even some states, many states, actually, that require an underwriter or a processor manager to be licensed. So again, offering and negotiating terms, having those borrower conversations, you're going to definitely need a license for that.

What else? Responding to a consumer's request for a lower rate or lower points on a pending loan application by presenting to the consumer a revised loan officer, either verbally or in writing that includes a lower interest rate or lower points than the original offer, that, you would need a license for. So the processor gets on the phone, "Hey, great news! We got you a better rate than we thought." Boom. You're there. So anything other than what was already submitted becomes negotiating terms of the loan. And again, this is where a branch manager falls into it sometimes, because if the borrowers, let's say they're irate. They want to just escalate the complaint. It then goes to a manager. The manager gets on the phone. The manager, if they're unlicensed cannot say, "You know what? I'm going to go ahead and waive this fee."

What about, “I'm going to go ahead and give you a better rate or a better fee.” So, we're going to cover our closing costs? That's negotiating terms. And that's why a lot of branch managers have a license. Because you want to be able to have that conversation instead of passing them back to the loan officer that they may have been angry with in the first place. Any of the negotiating terms, you need a license to do any of those things. So, what does it not include? Let me give you a list of what it doesn't include. First, providing general explanations or descriptions in response to consumer queries regarding qualification for a specific loan product. Such as, explaining loan terminology. So, they say, "What is a debt-to-income ratio?" I've heard this. Or, "What's an LTV? You guys keep talking about an LTV." Explaining what that is, just an acronym? Fine, that's something that you would not need a license for. Lending policies such as that loan-to-value ratio of your financial institution. "So, do you have no money down?" Well, our products don't offer no money down. But if the borrower says, "I don't have any money down, what do we do?"

Turning around and saying, "Oh, based on your specific scenario, I can't do your loan." That's licensed activity. You can see why I went so big on; make sure that you are really careful and you can easily fall into this. Because you might have that conversation and you need a license to even say any of those things when it comes to negotiating. Second thing that you would need a license for negotiating, in response to a consumer's request, informing a consumer of the loan rates that are publicly available such as, your website. So, on your website, you've got today's rate for a specific loan product or something like that. That's okay, as long as you're not negotiating the rate. So, if you're like, "Well, if you looked at our website today, it says that the prime rate it's [inaudible] LIBOR is sitting at whatever."

Third, collecting information about a consumer in order to provide the consumer with information on loan products for which a consumer generally may qualify without presenting a specific loan offer to the consumer for acceptance either verbally in writing. So, collecting information about a consumer. So, you're just taking general information and somebody else will get back to them with loan products. Fourth, arranging the loan closing or other aspects of the loan process, including communicating with a consumer about those arrangements. Basic stuff, you guys. This is like, processing a loan 101 and coordinating, collecting data, making sure that you're getting everything to the borrower that is like details of closing, totally fine. And then providing them with information unrelated to the loan terms, such as the best days of the month for scheduling a closing. So, something like that, basic stuff you don't need a license.

Couple final things on this. Explaining or describing the steps in the process. So, meeting with somebody and saying, "Well, here's how it's going to work. First, you're going to meet with a loan officer. Loan officer is going to look at your credit, then it's going to be underwritten." That is totally fine. And then finally on this. Communicating on behalf of a mortgage lender originator that a written offer, including disclosures provided, presumed that the Truth In Lending Act has been sent to a consumer, without providing details of that offer. You do not need a license for that. So, be careful with all of these things. Anytime you have a borrower conversation and it gets into detail about their own situation, you run the risk of needing a license. With the amount of secret shopping the CFPB is doing, with secret shopping that your company's required to do when it comes to licensing, you don't want to accidentally have the conversation.

So, what I'm hoping you get out of this video is number one, be really careful in those conversations to make sure you're not doing licensed activity when you're unlicensed. But also number two, I want you to consider getting a license. If you're not licensed and you have these conversations, it's definitely the steps you want to take before you have any more of them. Because it just gives you so much more freedom. The final thing I would cover here for you is every state requires a license. If you're licensed in Colorado, but nowhere else, doing any of those things we just listed in any other state, is a violation of that state's law. So, you want to make sure that if somebody talks to you, just going back to where I started these videos, when somebody talks to you and says, "I am in Wisconsin."

And you don't have a Wisconsin license, pass that over to somebody at your company that's licensed in Wisconsin.

Or get that referral out to somebody else or let them know that they need to find another licensee. Because you can't have those conversations. So, even receiving the loan application in a state where you don't have a license is a violation of that state's law. I teach state's NMLS training. I do every state in the country. And I'm telling you, I'm using case studies in most states constantly where somebody's done out-of-state originator, has originated inside their state and they're hitting them with fines. They're kicking them out of the business in some cases. And remember when your license has been revoked in one state, it's revoked in every state forever. So, if you're a loan officer, remember your license is at risk, having those conversations with out-of-state borrowers. If you are a processor or anybody else talking to the borrower, consider getting a license.

That's all I've got you guys. Have a great day.

Additional Reading:
Common NMLS Licensing Issues