The Consumer Financial Protection Bureau late this week shut the door on states issuing transitional licenses to bank loan officers who seek work for an independent mortgage banking or brokerage shop.
“The bureau recognizes this can create impediments to job changes and is committed to working with the states, industry” and others to minimize the impediments, the CFPB said.
However, 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 bank 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 its harder for bank LOs to simply jump ship and begin originating loans at an independent mortgage banking company.
“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 loan originator while pursuing a SAFE Act state license,” the April 19 CFPB bulletin says.
CFPB did clarify that states can provide transitional licenses for a state-licensed LO seeking to become licensed in new state.
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.
