The federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the SAFE Act) defines a mortgage loan originator as anyone who engages in the business of negotiating or making residential mortgage loans. It does not matter whether they are paid by the property seller, buyer, mortgagor, or investor when they prepare the loan documents or negotiate terms with borrowers.
A person who, for a fee or other compensation, directly or indirectly solicits, offers, arranges, places, or negotiates a mortgage loan on behalf of the owner of the lender. This definition includes an employee of a mortgage broker; any person whose principal business is lending money; and any person engaged as an independent contractor to solicit prospective borrowers or offer, negotiate or arrange a mortgage loan on behalf of the owner of the lender.
Under federal law, individuals who engage in the business of originating or making residential mortgage loans must be licensed by their states. The SAFE Act requires all applicants to go through an extensive licensing process that will include the satisfactory completion of a course covering state-specific real estate and mortgage loan origination laws. Under new rules promulgated by the Federal Reserve Board (FRB), licensees are required to pass a test demonstrating minimum competency in these areas of knowledge.
As part of meeting its obligation under the SAFE Act, each state is developing standards for licensing mortgage loan originators. These standards will vary from state to state with some adopting more stringent requirements than others. However, there are several common elements among states' current and proposed licensing standards. To assist you in determining whether a real estate professional must be licensed, the NFPA has compiled these common elements below.
In an effort to address consumer complaints about abuses by mortgage brokers and loan officers, the federal government has imposed new regulations on these entities. In particular, a major reform recently was put into place that will subject real estate professionals who work in the business of residential mortgage loans to 'affirmative action' standards.
The term "affirmative action" is defined in various ways but in this context, it means that every licensed professional must meet standards of conduct and competence-based upon their experience and training. This applies to all employees of any organization involved in the business of originating or making residential mortgage loans whether they are paid by salary or commission. As such, despite having no previous involvement with such transactions, every real estate agent, broker, appraiser and inspector are subject to these standards.
Most states have decided that applicants for mortgage loan originator licenses must take courses that cover state real estate and lending laws as well as general business practices such as ethics and record-keeping. Most states also now require individuals to pass an examination demonstrating they understand those topics before issuing a license.
Before deciding whether you want to obtain a license or continue working without such credentials, individuals need to research their state's specific licensing program rules and fees. The good news is that most states give the public free access to information on their proposed and current licensing programs by providing these materials on their websites.
When you are required to obtain an MLO license, it is often necessary to obtain bonding coverage. A surety bond essentially guarantees the payment of obligations made by your company or individual employees. For example, if a lender chooses not to pay a borrower for any reason, the surety will make up the difference out of its own funds.
Since a mortgage broker or loan officer can be held liable financially for all activities during the property purchase process, business owners realize the importance of protecting their businesses with adequate insurance products such as a mortgage loan originator bond.
Companies that engage in residential lending as part of their services need to take steps to ensure that they meet compliance standards as an affirmative action obligation as well as federal and state licensing standards. Any organization that hires a third-party company to assist with the real estate loan application process, such as an independent escrow agent, also must ensure that all of their business practices meet the standards set by law.
Third-party companies that originate or close mortgage loans within the United States are often required to have a surety bond in place for each state they do business in. The cost of this type of insurance coverage depends on what state you are doing business in as well as any associated fees and factors involved with finding an appropriate underwriting partner. In general, most companies will find it necessary to go through at least two agents before finding one who can provide affordable rates without charging too many fees along the way.
When you are in the market for a mortgage loan originator surety bond, it is wise to not only comparison shop but also asks about any specialty policies that may be available. In this industry, there are many different types of insurances available from specialized risk management services which can add benefits when used with other policies such as bonds.
When shopping around for an insurance company, make sure you know what type of policy fits your needs best to ensure that it will provide adequate protection throughout its duration. For example, some companies offer a 'blanket' coverage plan that offers single rate pricing and eliminates the need for additional underwriting reviews along the way. Others may issue a pro-rated fee schedule which might save money upfront but increase the cost of coverage over time.