Written by Haydn J. Richards, Jr., as originally published in The Reverse Review.

Two recent key regulatory developments will bring about important changes for state-licensed and federally registered mortgage loan originators. The first, the announcement of the development of a uniform state mortgage loan originator examination, will ease licensing burdens on state-licensed mortgage loan originators. The second, revisions to Regulation Z promulgated by the CFPB’s discussion of mortgage loan originator compensation matters, imposes new requirements on financial institutions employing mortgage loan originators. When considered together, both of these measures will increasingly bring uniformity to mortgage loan originator operations, whether those operations occur at a bank or at a non-depository institution.

Uniform State Mortgage Loan Originator Examination In April, the Conference of State Bank Supervisors will make available a new National SAFE Act Mortgage Loan Originator Examination through the Nationwide Multistate Licensing System. That examination will include a Uniform State Component that will provide reciprocity among participating jurisdictions. If an individual successfully passes the National SAFE Act Mortgage Loan Originator Examination, he or she will have met the minimum applicable state testing requirements in each jurisdiction that has agreed that the uniform test is an acceptable alternative to their respective state examinations.

For a one-year period, candidates who have already met their state’s current testing requirements can take a component exam that will allow them to take advantage of the reciprocity feature of the new National SAFE Act Mortgage Loan Originator Examination without having to complete the entire test.

Upon its initial release in April 2013, 20 regulatory agencies will have agreed to accept results from the uniform test as an adequate substitute for their state-specific examination. An additional four regulatory agencies have agreed to accept the results on and after July 1, 2013.

Before the development of this Uniform State Examination, a mortgage loan originator seeking to conduct business in various jurisdictions would need to successfully take and pass a different state examination in any jurisdiction in which he or she sought a license. Once this uniform test comes into play, those who successfully pass it could avoid taking at least 24 separate state examinations. Many expect that additional regulatory agencies will agree to accept the Uniform State Examination in the future.

Loan Originator Compensation Regulation With its recent issuance of the final rule on mortgage loan originator compensation under Regulation Z, the CFPB will bring significant changes to the way depository institutions and other entities that qualify to register mortgage loan originators handle background-related matters. Of note, institutions whose employees are registered mortgage loan originators must provide those employees continuing education annually, similar to the obligation that licensees now have.

In addition, effective January 10, 2014, the updated regulation will require all employers of mortgage loan originators that are not licensed or required to be licensed to obtain criminal background checks, a credit report and information relating to any administrative, civil or criminal determinations by a governmental jurisdiction on such employees. The requirement to perform these background checks applies to all individuals hired after January 10, 2014. It also applies to all mortgage loan originator employees who were hired prior to that date, when there were no statutory or regulatory background standards in effect.

This regulation will serve to minimize the impact of the existing gap under the federal SAFE Act that prevented certain individuals convicted of felonies from working as a mortgage loan originator for state-licensed institutions but who were eligible to qualify for federal registration when employed by a financial institution.

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