Background Checks for Licensing as a Mortgage Loan Originator in California

background-checks for mortgage loan officer california

 

Mortgage loan origination activity by a Department of Real Estate Licensee – whether a real estate broker or real estate salesperson – requires that the license holder apply to the DRE for an MLO ENDORSEMENT to the license that allows the licensee to engage in Mortgage Loan Origination Activity.

PRE-APPLICATION TIP:

To conduct mortgage loan origination (MLO) activity under a license issued by the California Department of Real Estate or the Department of Business Oversight (DBO), you are required to undergo a background check. Look into whether your background is going to pose a problem when seeking the MLO Endorsement (issued by the DRE) or MLO License (issued by the DBO) BEFORE you apply.

MLO Background Requirements

The SAFE Act requires that each MLO applicant submit a set of fingerprints through NMLS. Earlier fingerprinting submitted to the DRE for licensing as a real estate broker or salesperson is not accepted.  The MLO applicant is required to submit a new set of fingerprints to the NMLS when applying for an MLO license endorsement.

Special Information Regarding Prior Violations:

The SAFE Act provides for the denial of an MLO for the following reasons:

The applicant has been convicted of a felony involving an act of fraud, dishonesty, breach of trust, or money laundering – these types of convictions create a lifetime bar to MLO licensing.

In addition:

An applicant convicted of any felony in the seven-year period prior to filing an application for an endorsement will also be denied.

Other reasons for denial:

The applicant has had a loan originator license revoked in any governmental jurisdiction.

The applicant has demonstrated a lack of financial responsibility, character, and general fitness such as to command the confidence of the community and to warrant a determination that the applicant will operate honestly, fairly, and efficiently.

Prior to initiating the process to receive an MLO endorsement, it is advisable for the applicant to engage legal counsel if any background concerns exist.

Why are the rules for the MLO Endorsement more stringent than the rules for applying to be a real estate salesperson or broker?

The SAFE Mortgage Licensing Act was designed to enhance consumer protection and reduce fraud by requiring states to, among other things, establish minimum standards for the licensing and registration of state-licensed mortgage loan originators and to establish and maintain a nationwide mortgage licensing system and registry for the residential mortgage industry. The SAFE Act sets a minimum standard for licensing and registering mortgage loan originators.

The S.A.F.E. Mortgage Licensing Act – formally cited as the “Safe and Fair Enforcement of Mortgage Licensing Act of 2008,”  was enacted in response to the subprime mortgage crisis – an event that led the United States into the Great Recession.  Prior to the SAFE act, requirements to engage in mortgage loan activity varied from state to state – with some of the activity falling outside of government regulation.

The stated purpose for enacting the SAFE ACT is as follows:

In order to increase uniformity, reduce regulatory burden, enhance consumer protection, and reduce fraud, the States, through the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, are hereby encouraged to establish a Nationwide Mortgage Licensing System and Registry for the residential mortgage industry that accomplishes all of the following objectives:

(1) Provides uniform license applications and reporting requirements for State-licensed loan originators.

(2) Provides a comprehensive licensing and supervisory database.

(3) Aggregates and improves the flow of information to and between regulators.

(4) Provides increased accountability and tracking of loan originators.

(5) Streamlines the licensing process and reduces the regulatory burden.

(6) Enhances consumer protections and supports anti-fraud measures.

(7) Provides consumers with easily accessible information, offered at no charge, utilizing electronic media, including the Internet, regarding the employment history of, and publicly adjudicated disciplinary and enforcement actions against, loan originators.

(8) Establishes a means by which residential mortgage loan originators would, to the greatest extent possible, be required to act in the best interests of the consumer.

(9) Facilitates responsible behavior in the subprime mortgage market place and provides comprehensive training and examination requirements related to subprime mortgage lending.

(10) Facilitates the collection and disbursement of consumer complaints on behalf of State and Federal mortgage regulators.