When MetLife Bank NA jettisoned its mortgage subsidiary back in January most of the firm’s loan officers moved to Wells Fargo and other banks. For the LOs affected, moving to a nonbank lender wasn’t a practical option.
The reason is simple: the mortgage loan officer registration and licensing law known as the SAFE Act makes it cumbersome for bank LOs to jump to an independent (nonbank) mortgage company. In general, the requirements for bank LOs are lax compared to the tougher standards set for state-licensed (nonbank) LOs. A bank LO only has to register under the SAFE Act and undergo a criminal background check by his/her employer.
For a bank LO suddenly out of work, it could take 60 to 90 days to meet all the state testing and education requirements to become a state-licensed LO—plus they must undergo a financial check to ensure they are not struggling with bills and other obligations.
To reduce the waiting time, some industry groups tried to obtain regulatory approval for the states to issue “transitional” licenses which allow a former bank LO to originate loans while they undergo the state licensing process. But the Consumer Financial Protection Bureau closed the door on that option, claiming it is not permissible under the Secure and Fair Enforcement for Mortgage Licensing Act.
“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.
The CFPB’s interpretation is based on a SAFE Act rule promulgated by the Department of Housing and Urban Development.
The Mortgage Bankers Associations disagrees with the bureau’s interpretation and the trade group is weighing what step to take next.
The SAFE Act “creates barriers” to LOs moving between federally supervised and state-licensed companies, according to MBA chief executive David Stevens. It reduces competition, he said, and sentences some LOs to periods of unemployment when a bank or company unexpectedly closes its doors.
The CFPB clarified that states can provide transitional licenses for LOs that are already licensed in another state. This temporary license allows the LO to originate loans while completing the new state’s licensing process.
But that doesn’t help bank LOs seeking to hook up with in independent mortgage banking or brokerage firm.
“We are very disappointed in [CFPB’s] interpretation,” said Glen Corso, managing director of the Community Mortgage Banking Project.
The CFPB is also is working with the Conference of State Banking Supervisors on another approach known as “de novo inactive.” It’s not as elegant as a transitional license, but it allows the bank LO to secretly complete the state’s educational and testing requirements while working at a bank.
No license is issued until they actually resign from the bank and go to work at a state-licensed lender. “Then a license can be issued in a few days,” Corso said.
Currently, 21 states permit the de novo inactive process and 15 states are considering it. The other 14 states won’t allow a bank LO to take the tests until they are employed by the state-licensed lender.
The de novo process creates opportunities for bank LOs to take the tests even if they don’t intend to change jobs or use the state-license immediately, according to Stevens.
If they do move to an independent mortgage company, “they can become active without going through a period of unemployment,” Stevens said.
