Model State Law Mortgage Licensing Requirements and Standards

In the United States, mortgage licensing requirements and standards vary from state to state, but many states have adopted model state laws to streamline the process. These model state laws aim to provide consistency and fairness in the mortgage industry.

The Conference of State Bank Supervisors (CSBS) has developed a model state law that outlines the minimum requirements for mortgage licensing. This law includes provisions for licensing types, such as broker and originator licenses. Some states have adopted this model law in its entirety, while others have modified it to suit their specific needs.

To become a licensed mortgage broker or originator, individuals must meet specific education and training requirements. For example, they must complete a minimum of 20 hours of pre-licensing education, which covers topics such as mortgage regulations and ethics.

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To become a licensed mortgage loan originator, an individual must meet certain minimum requirements. These requirements are outlined in the S.A.F.E. Act and include having never had a loan originator license revoked, except in cases of formally vacated revocations.

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A state must require and find that an individual has never been convicted of a felony in a domestic, foreign, or military court, or pled guilty or nolo contendere to a felony, during the 7-year period preceding the date of the application for licensing. Expunged convictions and pardoned convictions do not affect eligibility.

An individual must also demonstrate financial responsibility, character, and general fitness to warrant a determination that they will operate honestly, fairly, and efficiently. This includes completing at least 20 hours of pre-licensing education that has been reviewed and approved by the Nationwide Mortgage Licensing System and Registry.

The pre-licensing education must include at least 3 hours of Federal law and regulations, 3 hours of ethics, and 2 hours of training on lending standards for the nontraditional mortgage product marketplace. An individual must also achieve a test score of not less than 75 percent correct answers on a written test developed by the NMLSR.

A loan originator must also be covered by either a net worth or surety bond requirement, or pay into a state fund, as required by the state loan originator supervisory authority. They must also submit to the NMLSR fingerprints for submission to the Federal Bureau of Investigation and to any government agency for a state and national criminal history background check.

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Here are the minimum requirements for a state licensing system:

In cases where a state has not established a licensing and registration system in compliance with the minimum standards of the S.A.F.E. Act, the Bureau shall apply to individuals in that state the minimum standards of the S.A.F.E. Act.

A state must maintain a loan originator licensing, supervisory, and oversight authority that provides effective supervision and enforcement, in accordance with the minimum standards provided in this section and in § 1008.113.

To suspend, terminate, and refuse renewal of a loan originator license, a state must have the authority and mechanisms in place, as specified in § 1008.111(b)(5). This includes the power to take action against individuals who violate state or Federal law.

The supervisory authority must also be required to regularly report violations of state law, as well as enforcement actions and other relevant information, to the NMLSR, as stated in § 1008.111(d). This ensures transparency and accountability in the mortgage industry.

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To renew a loan originator license, a state must require the individual to meet minimum standards for license issuance, which includes satisfying annual continuing education requirements. These requirements include a minimum of 8 hours of education approved by the NMLSR.

At least 3 hours of the 8 hours must be focused on Federal law and regulations. This is a crucial aspect of loan originator training, as it helps individuals stay up-to-date on the latest federal laws and regulations.

2 hours of the 8 hours must be dedicated to ethics, including instruction on fraud, consumer protection, and fair lending issues. This ensures that loan originators have a strong understanding of the importance of ethics in their work.

Another 2 hours must be focused on training related to lending standards for the nontraditional mortgage product marketplace. This helps loan originators understand the complexities of nontraditional mortgage products.

A state-licensed loan originator can only receive credit for a continuing education course in the year it is taken. This means that credits from one year cannot be applied to meet the continuing education requirements of subsequent years.

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An individual may not meet the annual requirements for continuing education by taking an approved course more than one time in the same year or in successive years. This prevents individuals from gaming the system by taking multiple courses to meet the requirements.

Instructors of approved continuing education courses may receive credit for their own annual continuing education requirement at the rate of 2 hours credit for every one hour taught. This is a great incentive for experienced loan originators to share their knowledge with others.

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After you've obtained your initial loan originator license, there are certain requirements you'll need to meet to keep your license active.

You'll need to meet minimum annual license renewal requirements, which include continuing education. Specifically, you'll need to complete at least 8 hours of education approved by the NMLSR each year.

This education must include at least 3 hours of Federal law and regulations, 2 hours of ethics, and 2 hours of training related to lending standards for the nontraditional mortgage product marketplace.

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You can only receive credit for a continuing education course in the year it's taken, and you can't apply credits from one year to meet the continuing education requirements of subsequent years.

As an instructor of an approved continuing education course, you can receive credit for your own annual continuing education requirement at a rate of 2 hours credit for every one hour taught.

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Compliance and Reporting is a crucial aspect of the model state law mortgage. The law requires lenders to maintain accurate and detailed records of all mortgage transactions.

Lenders must also comply with federal and state regulations regarding loan servicing, including requirements for escrow accounts and annual statements. This ensures that borrowers receive timely and accurate information about their mortgage payments.

In addition to maintaining records and complying with regulations, lenders must also report certain information to government agencies, such as the Federal Reserve and the Consumer Financial Protection Bureau.

The S.A.F.E. Mortgage Licensing Act is a set of regulations that govern the licensing and registration of loan originators. The Bureau requires states to establish a licensing and registration system that meets the minimum standards of the S.A.F.E. Act.

To be eligible for a loan originator license, an individual must meet certain minimum requirements. This includes having never had a loan originator license revoked in any governmental jurisdiction, except for a formally vacated revocation. They must also have never been convicted of a felony in a domestic, foreign, or military court during the 7-year period preceding the date of the application for licensing.

Expunged convictions and pardoned convictions do not affect an individual's eligibility for a loan originator license. However, a formally vacated revocation does not count as a revocation. The individual must demonstrate financial responsibility, character, and general fitness to warrant a determination that they will operate honestly, fairly, and efficiently.

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To meet the minimum standards for license issuance, an individual must complete at least 20 hours of pre-licensing education that has been reviewed and approved by the Nationwide Mortgage Licensing System and Registry. This education must include at least 3 hours of Federal law and regulations, 3 hours of ethics, and 2 hours of training on lending standards for the nontraditional mortgage product marketplace.

An individual must also achieve a test score of not less than 75 percent correct answers on a written test developed by the NMLSR. They may take the test three consecutive times, with each retest occurring at least 30 days after the preceding test. If an individual fails three consecutive tests, they must wait at least 6 months before taking the test again.

To renew a loan originator license, an individual must continue to meet the minimum standards for license issuance and satisfy annual continuing education requirements. This includes at least 8 hours of education approved by the NMLSR, which must include at least 3 hours of Federal law and regulations, 2 hours of ethics, and 2 hours of training related to lending standards for the nontraditional mortgage product marketplace.

If a state has not established a licensing and registration system in compliance with the minimum standards of the S.A.F.E. Act, the Bureau shall apply to individuals in that state the minimum standards of the S.A.F.E. Act. The Bureau may also examine any loan originator operating in any state subject to a licensing system established by the Bureau, and assess the cost of conducting the examination against the loan originator.

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Financial reporting is a crucial aspect of compliance and transparency.

CSBS must annually provide to the Bureau and make available to the public, NMLSR financial statements audited according to GAAP.

These financial statements include the level and categories of funds received for the NMLSR and how they are spent.

The total funds paid for system development and improvements are reported annually, as well as the aggregate total of salaries and bonuses paid.

Other administrative costs, such as money paid to reimburse system investors or lenders, are also detailed in the financial statements.

Each state's activity with the NMLSR is reported, including the number of licensees and the fees collected through the system.

The states' financial commitment to the system is also disclosed, providing a clear picture of the system's financial health.

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To get licensed as a mortgage loan originator, you'll need to meet the minimum requirements outlined by the state. An individual must have never had a loan originator license revoked, except for a formally vacated revocation, and must not have been convicted of a felony in the past 7 years or at any time for an act of fraud, dishonesty, or breach of trust.

A licensed attorney is required to be licensed as a loan originator if their activities are not all of the following: considered part of the authorized practice of law, carried out within an attorney-client relationship, and accomplished in compliance with all applicable laws and standards. On the other hand, a licensed attorney performing activities that come within the definition of a loan originator is not required to be licensed if such activities are about the attorney's own residence or within the scope of an attorney-client relationship.

Individuals who are exempt from licensing include registered mortgage loan originators, employees of banks, credit unions, and certain licensed attorneys. However, attorneys who are compensated by a lender or other mortgage loan originator are never exempt.

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A state's supervisory authority must have established processes in place to verify that individuals subject to the requirement are registered with the NMLSR.

The supervisory authority must be required under state law to regularly report violations of such law, as well as enforcement actions and other relevant information, to the NMLSR.

Facilitating the collection and disbursement of consumer complaints is a key responsibility of the NMLSR, allowing state and Federal mortgage regulators to effectively address consumer concerns.

To fulfill this role, the NMLSR must facilitate the collection and disbursement of consumer complaints on behalf of state and Federal mortgage regulators, as specified in Subpart D of the S.A.F.E. Act.

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After submitting your application, you'll receive a written notification of approval or denial. If your application is approved, you'll be required to submit a surety bond.

A License Certificate will be issued once the bond is submitted, and a notification will be mailed to your sponsoring entity. If your application is denied, you'll receive a notification of denial, and a notification will also be mailed to your sponsoring entity.

Annual renewals are required, and a renewal reminder will be e-mailed to you at least 60 days prior to the expiration date of December 31 each year.

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Exemptions are a crucial part of the licensing process, and understanding who is exempt can save you a lot of time and hassle.

Individuals who are registered mortgage loan originators are exempt from the license provisions of this law, as long as they are employed by a bank, trust company, savings bank, savings and loan association, or credit union.

Attorneys who are compensated by a lender, a mortgage broker, or other mortgage loan originator or by any agent of such lender, mortgage broker, or other mortgage loan originator are never exempt.

Certain licensed attorneys who meet strict criteria are exempt from obtaining a state loan originator license and registration.

Loan processors or underwriters who are employees of an originating entity are generally not included in the definition of mortgage loan originators and are therefore exempt.

However, independent contractor loan processors or underwriters must obtain and maintain a license under this article and have a valid unique identifier issued by the NMLS.

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Individuals who offer or negotiate the terms of a residential mortgage loan with or on behalf of an immediate family member, or who offer or negotiate terms of a mortgage on their own residence, are also exempt.

Here is a list of exemptions:

Lenders have a duty to comply with the Model State Law Mortgage, which includes providing borrowers with a written notice of default at least 30 days before initiating foreclosure proceedings.

Borrowers who fail to pay their mortgage can expect to receive a notice of default, which will outline the amount owed and the next steps to take.

The Model State Law Mortgage requires lenders to provide borrowers with a written notice of acceleration, which informs them that the entire balance of the loan is due immediately.

Borrowers who fail to pay their mortgage after receiving the notice of acceleration may be subject to foreclosure proceedings.

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In the event of a foreclosure, borrowers may be liable for any unpaid balance on the loan, as well as additional fees and costs associated with the foreclosure process.

Borrowers who are found to have committed mortgage fraud may face penalties, including fines and imprisonment, under the Model State Law Mortgage.

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A model state law mortgage is a standardized set of laws and regulations that govern the mortgage industry in a particular state. This framework is designed to provide a uniform approach to mortgage lending and borrowing.

Mortgage lenders and borrowers can rely on these laws to ensure a fair and transparent process. The model state law mortgage promotes consistency and predictability in the mortgage market.

The model state law mortgage typically includes provisions for licensing and registration, loan origination, and disclosure requirements. These provisions help to protect consumers and promote fair lending practices.

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The effective date for requirements imposed on individuals is a crucial aspect of the S.A.F.E. Act. A state must provide that the effective date for requirements imposed in accordance with certain sections is no later than August 29, 2011.

There are some exceptions to this rule. A state may delay the effective date for requirements imposed in accordance with those sections to no later than August 29, 2011, for an individual who was permitted to perform residential mortgage loan originations under state legislation or regulations enacted or promulgated prior to the state's enactment or promulgation of a licensing system.

This exception applies only if prior state law required the individual to be licensed, authorized, registered, or otherwise granted a form of affirmative and revocable government permission for individuals as a condition of performing residential mortgage loan originations.

In some cases, the Bureau may approve a later effective date if a state can demonstrate that substantial numbers of loan originators face unusual hardship in complying with the standards required by the S.A.F.E. Act and in obtaining state licenses within one year.

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The purpose of the S.A.F.E. Act is to enhance consumer protection and reduce fraud by directing states to adopt minimum uniform standards for the licensing and registration of residential mortgage loan originators.

The S.A.F.E. Act requires states to participate in a nationwide mortgage licensing system and registry database of residential mortgage loan originators. This ensures that all loan originators are held to the same standards and are properly regulated.

If a state's loan origination licensing system does not meet the minimum requirements of the S.A.F.E. Act, the Bureau will establish and implement a system for all loan originators in that state. This ensures that consumers are protected and that loan originators are held accountable.

The Bureau also has the authority to establish and maintain a licensing and registry database for loan originators if the nationwide mortgage licensing system and registry is failing to meet the S.A.F.E. Act's requirements.

The S.A.F.E. Act clarifies the Bureau's enforcement authority in states in which it operates a state licensing system, as outlined in Subpart E. This provides a clear understanding of the Bureau's role in regulating loan originators.

The S.A.F.E. Act also requires the Nationwide Mortgage Licensing System and Registry to make certain information available to the public, including employment history and any publicly adjudicated disciplinary and enforcement actions against loan originators.

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The Superintendent is authorized to set the amount of a bond that each licensed mortgage loan originator must maintain, as specified in Part 420.

A bond provided by an employer or approved entity can be used for MLOs, as long as the aggregate amount is equal to or greater than the prescribed amount in Part 420.

The surety bond must be in a form prescribed by the Superintendent, which is posted on the website.

Subpart A of the regulation establishes the definitions applicable to this part, providing a clear understanding of the terms and concepts used throughout the regulation.

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The bond requirement is determined by the Superintendent, who sets the amount in Part 420. This amount is the minimum that a licensed mortgage loan originator must maintain.

The Superintendent also authorizes originating entities to provide a bond for their MLOs, as long as the entity is approved by the Superintendent. This can be a single bond for all MLOs, as long as the aggregate amount is equal to or greater than the prescribed amount in Part 420.

The bond must be in a form prescribed by the Superintendent, which is available on the Superintendent's website.

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The S.A.F.E. Act sets minimum standards for states to license and register loan originators, and this subpart describes those standards.

This subpart applies to states that don't have a system in place that meets the minimum standards, and upon making such a determination, the Bureau will impose requirements and exercise enforcement authorities.

The Bureau has the authority to establish a loan originator licensing system for any state that's not in compliance with the minimum standards.

The S.A.F.E. Act also authorizes the Bureau to establish and maintain a nationwide mortgage licensing system and registry if the NMLSR is failing to meet the purposes and requirements of the S.A.F.E. Act.

The Bureau will impose requirements and exercise enforcement authorities on states that don't meet the minimum standards, as described in subparts C and E of this part.

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State regulators have recently collaborated on regulatory reforms to harmonize state supervision of nonbank mortgage servicers. This means that states are working together to create consistent rules for these companies.

The CSBS Board of Directors approved model prudential standards addressing capital, liquidity, and corporate governance. These standards cover important aspects of a company's financial health and management.

Nonbank mortgage companies must be licensed in every state in which they do business. This is a requirement that affects many companies that operate across multiple states.

The model prudential standards apply to the company, not just the state where it's licensed. This means that if a company is licensed in multiple states, it's subject to these standards everywhere.

Only one licensing state needs to adopt the model prudential standards for the requirements to apply to a company doing business in multiple states. This makes it easier for companies to comply with regulations.

Nonbank mortgage servicers licensed in at least one state that has already adopted the model prudential standards collectively service 99% of the nonbank mortgage market by loan count. This highlights the significant reach of these standards.

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In the world of standards and definitions, it's essential to understand the terminology used.

The term "Agency" refers to a federal department or agency of the United States.

A "Branch" is a subdivision of an agency.

The "Code of Federal Regulations" (CFR) is a codification of the general and permanent rules published in the Federal Register by the executive departments and agencies of the United States.

The CFR is divided into 50 titles that represent broad areas subject to federal regulation.

The "Federal Register" is a daily publication that provides a comprehensive and authoritative source for rules, proposed rules, and notices of federal agencies.

A "Notice" is a document that informs the public of a specific action or event.

The "Public" refers to all individuals, organizations, and entities affected by a rule or regulation.

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A state must maintain a loan originator licensing, supervisory, and oversight authority that provides effective supervision and enforcement.

A supervisory authority must have the legal authority and mechanisms to examine any books, papers, records, or other data of a loan originator operating in the state.

A supervisory authority must be able to summon a loan originator or any person having possession of the reports and records relating to the loan originator to appear before the authority and produce relevant data.

A supervisory authority must have the power to administer oaths and affirmations, examine and take testimony under oath, and preserve testimony as to any matter related to the affairs of a loan originator.

A supervisory authority must be able to enter an order requiring an individual or person to cease and desist from committing or causing a violation of the S.A.F.E. Act.

A supervisory authority must be able to suspend, terminate, and refuse renewal of a loan originator license for violation of state or Federal law.

A supervisory authority must be able to impose civil money penalties for individuals acting as loan originators without a valid license or registration.

A supervisory authority must have processes in place to verify that individuals subject to registration are registered with the NMLSR.

A supervisory authority must report violations of state law, enforcement actions, and other relevant information to the NMLSR.

A supervisory authority must have a process in place to challenge information contained in the NMLSR.

A loan originator must ensure that all residential mortgage loans that close as a result of their activities are included in reports of condition submitted to the NMLSR.

A supervisory authority must meet performance standards to provide effective supervision and enforcement, including participating in the NMLSR and disciplining loan originator licensees for violations of state or Federal law.

A supervisory authority must approve or deny loan originator license applications, renew or refuse to renew existing licenses, and discipline licensees with enforcement actions such as license suspensions or revocations.

A supervisory authority must examine or investigate loan originators in a systematic manner based on identified risk factors or on a periodic schedule.

A state must require an individual to meet minimum standards for license issuance, including continuing education requirements, to renew a loan originator license.

An individual must complete at least 8 hours of annual continuing education, including 3 hours of Federal law and regulations, 2 hours of ethics, and 2 hours of training related to lending standards for nontraditional mortgage products.

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