Could “Transitional” Mortgage Licensing Bridge Federal and State Requirements?

The dual licensing system currently in place to regulate federally-chartered banks and state entities that do not fall under the national regulatory umbrella could be putting some originators at a disadvantage. Especially light of recent exits of large national banks from the reverse mortgage industry where many lenders operate under state licensing, it can be time consuming for an originator to leave a large bank lender to pursue a new position at a state-regulated organization.

A potential solution raised by the Mortgage Bankers Association is to implement a form of “transitional licensing,” which would enable an originator who operated previously under the national rule to continue originating in the short term while he or she obtains licensing for a new employer under the state system.

At an American Association of Residential Mortgage Regulators industry conference in San Francisco, MBA’s regulatory counsel presented the association’s proposal to amend the SAFE Act to allow for transitional licensing for those originators who want to move from federally regulated institutions to state regulated entities, National Mortgage News reported in August.

Currently, any originators who work for state-regulated companies must be licensed and registered, while those who operate under a federally-regulated bank, credit union or savings and loan, must be registered only, because they are already regulated under federal law.

“MBA wants to ‘form a bridge’ from the federal system to the state system with a transitional license that would give applicants 120 days in which to complete any and all requirements a particular state would deem appropriate,” National Mortgage News reported.

Ken Markison, MBA regulatory counsel, told attendees and members of AARM that without the transitional licensing, state-regulated lenders won’t hire originators who are only registered or licensed in another state because of the lapse caused by the time it takes to obtain new licensing.

He said the delays can take 30 days or longer, and that lacking transitional licensing, often small enterprises and other state-regulated companies can be at a disadvantage because of the process by which employees of federally-regulated institutions or other states must obtain licensing. On the flip side, state-licensed employees can easily make the shift to federally-regulated companies.

“What we’re saying is when you have well qualified people who want to come into the state system, you should recognize their qualifications by putting them into a transitional license,” Markison told RMD. “Assuming they meet the qualifications of a transitional license then any additional requirements can be satisfied during the transitional period.”

Some states do currently allow for a temporary license that does not go into effect until the licensee is employed, Bill Matthews of the Conference of State Bank Supervisors told RMD. However, he said, the SAFE Act requires that at all times, a loan officer must be licensed or registered.

“Regulators can do a lot of things,” Matthews said, “but if they have a law or regulation that says you have to do x, y and z, it’s hard for them to grant something that’s temporary.”

As of July 21, the SAFE Act falls under the authority of the Consumer Financial Protection Bureau.

Written by Elizabeth Ecker

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