The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) was intended to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators (MLOs) and registration of loan originators of federally regulated companies.
While these goals have been achieved, these new requirements--particularly in the states--have proven costly. MLOs from state-regulated companies cannot move seamlessly between state-regulated companies, which prevents healthy competition in the industry.
The Mortgage Bankers Association (MBA) is strongly urging states to recognize the licenses of those out-of-state loan originators who hold a valid loan originator license from another state as a way of fostering mobility of MLOs and providing consumer choices.
Currently, out-of-state mortgage loan originators must undergo separate licensing processes when moving to a new state-regulated company that operates in another state or when they wish to serve consumers in another state while working for their current employer. For geographic regions, such as the Washington, D.C.--Maryland--Virginia area or the New England states, the burden on MLOs is great and would require that they undergo several state licensing processes before working for another state-regulated entity or originating loans in multiple states.
Moving to a different state could be especially problematic for MLOs. Few experienced loan originators would be willing to suspend their careers and jeopardize their client relationships while completing another licensing process that could easily take 60 days. Similarly, few independent mortgage bankers would be able to afford to pay MLOs' salaries when they are unable to bring in revenue to the company. Notably, federally regulated MLOs must only be registered, thus disadvantaging state-regulated companies in keeping talent and competing to serve consumers.
A 'green light'
Some states had been concerned about the legality of recognizing out-of-state licensure under the SAFE Act, but their concerns have been assuaged.
The Consumer Financial Protection Bureau (CFPB) opined on the legality of transitional license in its April 19, 2012, Bulletin 2012-5 when it stated, "The SAFE Act and Regulation H allow a state, if it chooses, to provide transitional loan...