CFPB clarifies training requirements for new category of loan officers

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The Consumer Financial Protection Bureau issued new rules governing mortgage lenders' screening and training of loan originators with temporary authority.

The new rules clarify some ambiguities in the 2018 regulatory relief act that created this transitional licensing authority in order to ease LOs moves to nonbank jobs from banks, and interstate transfers.

Under the SAFE Act, mortgage loan originators that work for a depository must be registered on the National Multistate Licensing System, but they are exempt from state licensing requirements, including education and training.

Because they were not required to meet nonbank education requirements, some MLO at depositories ran into difficulties making the switch to working at an independent mortgage banker.

Licensed loan officers who were looking to switch to a new state to work in where they were not currently licensed also were affected because requirements differ by jurisdiction.

While the federal regulatory relief act addressed those issues, there was some ambiguity over what entity was responsible for doing the required checks in it.

"The interpretive rule clarifies that the employer is not required to conduct the screening and ensure the training of loan originators with temporary authority," a CFPB press release said. "The state will perform the screening and training as part of its review of the individual's application for a state loan originator license."

This ambiguity came from the wording of the Truth-in-Lending Act and how the regulatory relief changes affected it.

"A loan originator with temporary authority does not satisfy the first condition in [the applicable portion of Reg. Z], because he or she is not an 'individual loan originator employee who is not required to be licensed ...' He or she is an employee who is required to be licensed, although the employee can act as a loan originator while seeking the required license," the agency said.

The CFPB was concerned the original wording of the rule could be interpreted as requiring mortgage bankers to complete the Reg. Z required screening before allowing an LO with temporary authority. That interpretation would an impediment on the individual and keep them from starting to work, "which would frustrate Congress's objective," the CFPB said.

This rule goes into effect on Nov. 24, the same day as the loan officer with temporary authority to originate loans category also becomes effective.

Some states, like New Jersey, previously changed their mortgage regulations to facilitate transitional licensing.

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