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Background on Mortgage Loan Originator MLO Transitional LicenseThe Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155 or the amendments), which was signed into law on May 24, 2018, adds a new section to the federal SAFE Act (12 U.S.C. 5101 et seq.) entitled “Employment Transition of Loan Originators.” These amendments become effective November 24, 2019, 18 months after enactment.
What the Law Permits
What is “temporary authority” to act as a mortgage loan originator (MLO) provided by the amendments?”Temporary authority to act as a loan originator permits:
- qualified MLOs who are changing employment from a depository institution 1 to a state-licensed mortgage company, and
- qualified state-licensed MLOs seeking licensure in another state, to originate loans while completing any state-specific requirements for licensure such as education or testing.
Who is eligible for temporary authority?MLOs must be:
- employed and sponsored through NMLS by a state-licensed mortgage company, and
- registered in NMLS as an MLO during the one year preceding the application submission; or
- licensed as an MLO during the 30-day period preceding the date of application.
What would disqualify an MLO from receiving temporary authority?MLOs who have:
- had an MLO license application denied or an MLO license revoked or suspended in any jurisdiction;
- been subject to, or served with, a cease and desist order; or been convicted of a misdemeanor or felony that would preclude licensure under the law of the application state.
How long can an MLO operate under temporary authority?Temporary authority begins on the date an eligible MLO submits a license application with the required background check information (fingerprints, personal history and experience, and authorization for a credit report as required in 12 USC 5104(a)), assuming there is no disqualifying event. It ends when the earliest of the following occurs:
- the MLO withdraws the application,
- the state denies or issues a notice of intent to deny the application,
- the state grants the license, or
- 120 days after the application submission if the application is listed on NMLS as incomplete.
What authority does the state regulator have with regard to MLOs operating under a temporary authority?The amendments specify that any MLO operating under temporary authority is subject to the requirements of the federal SAFE Act, and all applicable laws of the application state, to the same extent as if that MLO was a state-licensed loan originator licensed by the state.
Frequently Asked Questions on MLO Temporary Authority or Loan Originator Transitional License
1. As it pertains to S. 2155, will an MLO apply for a temporary authority license?No. An MLO applies for an MLO license and, if eligible, receives temporary authority.
2. When can a registered mortgage loan originator (RMLO) or a state licensed MLO apply for an MLO license and originate mortgages under temporary authority?The amendmentstates that temporary authority “shall take effect on the date that is 18 months after the date of enactment…” The amendments were enacted on May 24, 2018; therefore, MLOs cannot apply for a license and become eligible for temporary authority until November 24, 2019.
3. Howis eligibility for temporary authority evaluated?NMLS will be programmed to check certain elements of eligibility such as whether Criminal History Record Information (CHRI) exists and if an applicant has had an MLO license application denied, revoked, or suspended in any jurisdiction. NMLS will also be able to check the last date of registration for a federal MLO moving to a state-licensed company. Regulators may also need to manually check other elements of eligibility including the MLO’s CHRI and cease and desist orders to make sure there is no disqualifying event.
4. What must be included in a license application in order to obtain temporary authority?In order for an eligible individual to obtain Temporary Authority to Operate, the individual must submit a complete Mortgage Loan Originator License application through NMLS. A complete application must include:
- completed Individual Licensing Form (MU4) which contains personal history and experience;
- explanation and supporting documentation uploads for any “Yes” answer to a disclosure question;
- the receipt of a criminal history record information check from the FBI;
- authorization for a credit report to be obtained; and
- any state-specific document required as part of an MLO license application in the Application State.
5. Is it possible for an MLO to have temporary authority for more than 120 days?Yes. At the end of the 120 days, if an application is complete (including testing and education) and the agency has not yet made a decision on the application, temporary authority exists until the agency acts on the application.
6. How would the system respond to the following three scenarios?
- The MLO has a disqualifying event that can be ascertained from information in the system (e.g. a cease and desist order or a denial). The system would identify this, would not grant temporary authority, and would require that MLO SAFE Test and Pre-Licensure Education be completed prior to submission of the license application.
- The MLO applies for an MLO license then the application-state determines the MLO does not meet requirements for temporary authority because they have been convicted of a misdemeanor or felony that would preclude licensure in the application state. Temporary authority is not granted in that state. Denial by an application-state ends temporary authority in all states. An issuance of an intent to deny ends temporary authority only in the application-state.
- The MLO is granted temporary authority. After investigation of the application, a state determines that the MLO has a disqualifying event (e.g. a cease and desist order that is not in the system) thus the MLO should never have been granted temporary authority. The applicant state denies the application or issues an intent to deny and temporary authority is rescinded. Presumably, the state or states will bring an enforcement action against the MLO and the company, if the company knew, for failure to disclose the relevant event. Denial by an application-state ends temporary authority in all states. An issuance of an intent to deny ends temporary authority only in the application-state.