The Consumer Financial Protection Bureau is shutting the door on states issuing so-called transitional licenses to bank loan officers who seek work at an independent nonbank lender or brokerage shop.
Details on the move are still sketchy, but it could hamper bank LOs from jumping ship until they pass their testing requirements. (Nonbank LOs must pass state tests, bank LOs do not.)
The CFPB did clarify that states can provide transitional licenses for a state-licensed LO seeking to become licensed in a new state.
Still, the CFPB has thrown a mini lifeline to bank LOs, noting, “The bureau recognizes this can create impediments to job changes and is committed to working with the states” and industry to minimize the impediments.
The bureau felt constrained by a previous regulator’s interpretation of the Secure and Fair Enforcement for Mortgage Licensing Act commonly known as SAFE.
Mortgage LOs at FDIC-insured banks must be registered under the SAFE Act and undergo a criminal background check. However, they are not required to pass national and state tests or complete prelicensing education requirements like state-licensed LOs working for nonbanks.
The lax requirements for bank LOs may be why the SAFE Act makes it harder for bank LOs to quit and begin originating loans at an independent (nonbank) mortgage firm.
“Regulation H does not allow states to provide for a transitional license for a registered loan originator who leaves a federally regulated institution to act as a loan originator while pursuing a SAFE Act state license,” a late April CFPB bulletin states.
Some state-licensed LOs have multiple state licenses. But the vast majority operate in only one state.
The transitional license allows the LO to originate loans in the new state until they pass the new state’s test and fulfill any other requirements.
The bureau clarified what most states thought was the existing standards, according to Massachusetts banking commissioner David Cotney.
“We don’t think the guidance broke any new ground,” Cotney told National Mortgage News. He noted some states provide transitional licenses for state-licensed LOs and others don’t.
Massachusetts does not provide transitional licenses. Once an out-of-state LO takes the test and files an application, the turnaround time is less than two days on average, Cotney said. The process is so efficient, “a transitional license doesn’t make sense,” he added.
