The definition of a mortgage loan originator (MLO):
Mortgage loan originator means an individual who for compensation or gain in expectation of compensation or takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan. A residential mortgage loan is defined as a loan for personal, family, or household use that is secured by a mortgage, deed of trust, or equivalent consensual security interest on a dwelling or residential real estate upon which is constructed or intended to be constructed a dwelling.
Dwelling means a residential structure that contains one to four units, whether or not that structure is attached to real property including: individual condominium units, cooperative units, mobile homes, or trailers, if used as a residence.
The above activities require licensing to act as an MLO.
California offers two ways to be licensed to engage in MLO activity:
1. Regulation by the Department of Business Oversight:
All MLOs employed by finance lenders/brokers under the California Finance Law (CFL) or residential mortgage lenders/servicers under the California Residential Mortgage Lending Act (CRMLA) must be licensed. MLOs may apply for a license by submitting a Form MU4 to the California Department of Business Oversight (DBO) through the Nationwide Multistate Licensing System and Registry (NMLS).
The MLO license must be renewed each year between November 1 and December 31. MLOs must continue to meet all criminal, financial and background requirements at all times. FBI checks and credit checks may be required at renewal.
2. Regulation by the Department of Real Estate:
If you are licensed by the DRE as a real estate broker or real estate salesperson and intend to solicit, negotiate, or originate mortgage loans for residences of 1 to 4 units – you must first obtain an MLO endorsement to your DRE issued license if your services will be provided under the umbrella of DRE oversight. The alternative is licensing by the DBO which does not require the applicant to hold a real estate broker nor real estate salesperson license. DBO licensees are employed by CFLs or CRMLAs.
What are the Potential Consequences for Engaging in MLO Activity Without a License?
According to the Department of Real Estate, it may issue citations to unlicensed persons for violations of the Real Estate and Subdivided Lands Law pursuant to Business and Professions Code §10080.9 and Commissioner’s Regulation 2907 et seq. For unlicensed persons conducting activities requiring a license, the maximum fine amount is $2,500 per unlicensed act. The fine amount will vary depending on the considerations set forth in Commissioner’s Regulation 2907.2 such as the gravity of the violations, actual injury to consumers, and mitigating or aggravating factors. If an unlicensed company or individual engages in a number of MLO acts requiring MLO licensing, the DRE has the ability to impose significant fines.
The following factors will be considered when the violations have been committed by unlicensed persons or entities:
(1) Whether the unlicensed person or entity committed numerous or repeated violations;
(2) Whether the unlicensed person or entity falsely represented that he/she/it was licensed;
(3) Whether the unlicensed person or entity committed any act that would be cause for disciplinary action against a licensee;
(4) Whether the unlicensed person or entity claimed or received compensation for the acts, and the amount of compensation claimed or received;
(5) Whether the unlicensed person or entity was previously issued an Order to Desist and Refrain by the Bureau, or was formerly licensed and/or disciplined as a licensee and reasons why that license is no longer in effect.
In addition, Section 10139 of the California Business and Professions Code allows for the criminal prosecution of individuals who advertise mortgage loan origination services without the proper MLO endorsement.
The DRE has recently announced that it is issuing “Notices of Intent to Deny” in situations where the applicant does not hold a real estate license at the time of the application. Read more about this update here.