Regulators slap mortgage LOs with fines for skipping class

State regulators said there was "no indication" of consumer harm

More than 400 mortgage loan originators will pay penalties after a multi-state investigation alleged they falsely claimed they completed an annual continuing education requirement.

LOs in 42 states who settled with state regulators will pay on average about $2,700 each — $1,000 for each state they are licensed in — for skipping the annual eight-hour course. They must also surrender their licenses for three months and take additional educational programs.

The 26-state investigation, which the California Department of Financial Protection and Innovation led, picked up on the discrepancies using a digital tool to check fulfillment of NMLS requirements. The effort found loan officers failed to fulfill a continuing education requirement, which varies by state, meant to enhance consumer protection and reduce fraud.

The LOs implicated in the investigation all paid for educational programs from Carlsbad, California-based firm Real Estate Educational Services (REES), regulators said. The firm, owned by Danny Yen, was licensed to provide Nationwide Multi-State Licensing System education, but instead orchestrated two education schemes.

For more than 600 loan officers, state regulators allege Yen either took the classes in exchange for compensation, or gave them class credit without requiring the LOs show up to class. State agencies in California, Maryland and Oregon have started separate administrative actions against Yen, and he could face fines of up to $3.4 million, officials from the Conference of State Bank Supervisors and CDFPI said during a briefing Tuesday.

According to the REES company website, a three-hour online course giving a “basic understanding of Fair Housing and Discrimination law” can be purchased for $19. Yen was only licensed to give in-person classes, CSBS officials said.

How much could wire and title fraud cost lenders?

In comparing Q3 2021 with Q2 2021 numbers, there was a 19.7% increase in fraud and risk exposure related to CPL errors, a 6.5% increase in CPL/agent validation errors with title insurers, and a 12.8% increase in state licensing issues among closing agents.

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Calls to REES and Danny Yen Tuesday afternoon went unanswered.

Although the investigation found 608 LOs did not complete their requirements, only 441 have entered into settlements so far. States have already taken disciplinary actions against 14 of the 167 LOs that refused to settle with the task force. Regulators said additional actions will be filed in the coming months.

Although the loan officers who settled with state regulators face a three month “cooling off” period, the mortgages the LOs have already originated are not in question. State regulators said the loans were “valid,” because the LOs had valid NMLS licenses at the time. Officials stated there was “no indication of consumer harm.”

But it is less clear what will happen to the mortgages the loan officers currently have in their pipelines. Mortgage companies with loan officers that were part of the settlement who have loans in progress should contact their appropriate state regulator, the officials said.

The loan officers spanned 44 states and represent a broad swath of the mortgage industry, said Ed Gill, senior deputy commissioner of the CDFPI. The LOs were not concentrated in any particular segment of the market, and included a wide array of companies, Gill added. No action is being taken against the companies that employed the LOs.

“Mortgage loan originators are responsible for guiding consumers through the single largest financial transaction in their lifetime,” said DFPI Commissioner Clothilde Hewlett.

Hewlett added, these actions “remind the mortgage industry of their obligations to be ethical, honest and forthright.”

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