A mortgage loan originator is defined by the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the SAFE Act) as anyone who works in the business of negotiating or making residential mortgage loans. When they produce loan documents or negotiate terms with borrowers, it makes little difference if they are paid by the property seller, buyer, mortgagor, or investor.
A person who directly or indirectly solicits, offers, organizes, places, or negotiates a mortgage loan on behalf of the lender's owner for a fee or other reward. An employee of a mortgage broker, anyone whose primary business is lending money, and anyone hired as an independent contractor to find potential borrowers or offer, negotiate, or arrange a mortgage loan on behalf of the lender's owner are all included in this description.
Individuals who operate in the business of originating or making residential mortgage loans are required by federal law to be licensed by respective states. The SAFE Act mandates that all applicants go through a thorough licensing process, which includes passing a course on state-specific real estate and mortgage loan origination laws. Licensees must pass a test proving minimal competency in these areas of knowledge, according to new guidelines issued by the Federal Reserve Board (FRB).
Each state is developing standards for licensing mortgage loan originators as part of its SAFE Act obligations. State-by-state rules will differ, with some adopting more strict requirements than others. However, there are a few things that all states' present and prospective licensing criteria have in common. The NFPA has assembled these common components to help you determine whether a real estate professional needs to be licensed.
The federal government has imposed new regulations on mortgage brokers and loan officers in an effort to address consumer complaints about abuses by these entities. A major reform was recently enacted that will subject real estate professionals working in the residential mortgage loan industry to 'affirmative action' standards.
The phrase "affirmative action" has several definitions, but in this context, it means that every licensed professional must meet conduct and competency requirements based on their experience and training. This applies to all employees of any company that originates or makes residential mortgage loans, regardless of whether they are paid on a salary or commission basis. As a result, even if they have no prior experience with such transactions, every real estate agent, broker, appraiser, and inspector is bound by these rules.
Most states have mandated that applicants for mortgage loan originator license complete training on state real estate and lending laws, as well as standard business principles including ethics and record-keeping. Before obtaining a license, most states now require candidates to complete an examination demonstrating their understanding of certain topics.
Individuals should examine their state's specific licensing program requirements and fees before determining whether to seek a license or continue working without one. The good news is that most states make information on their proposed and present licensing programs available to the public for free on their websites.
It is frequently necessary to secure bonded coverage when applying for an MLO license. A surety bond simply ensures that your firm or individual employees will be paid for their responsibilities. If a lender refuses to pay a borrower for any reason, the surety will make up the gap with its own money.
Because a mortgage broker or loan officer can be held financially accountable for all acts related to the property purchase, company owners understand the need of securing suitable insurance, such as a mortgage loan originator bond.
Companies that provide home lending as part of their services must ensure that they comply with affirmative action requirements as well as federal and state licensing requirements. Any organization that hires a third-party entity, such as an independent escrow agent, to assist with the real estate loan application process must ensure that all of their business activities comply with the law.
Companies that originate or close mortgage loans in the United States are frequently required to have a surety bond in place for each state in which they operate. The cost of this form of insurance coverage is determined by the state in which you do business, as well as any associated fees and factors involved in locating a suitable underwriting partner. On average, most businesses will need to go through at least two agents before selecting one that can offer reasonable rates without imposing excessive costs.
When shopping for a mortgage loan originator surety bond, make sure to compare policies and inquire about any specialty insurance that may be available. There are many various forms of insurance available in this market from specialized risk management services, which can provide value when combined with other policies like bonds.
When looking for an insurance provider, make sure you understand what sort of policy best suits your needs to ensure that it will give appropriate protection for the term of the policy. Some businesses, for example, offer a "blanket" coverage plan with a single premium and no need for extra underwriting assessments along the route. Others may use a pro-rated pricing schedule, which saves money in the short term but raises the cost of coverage over time.