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MLO Transitional Licensing Authority – Implementation

Q: When does transitional licensing go into effect and how will it work?

A: Pursuant to Section 2155 of the federal Economic Growth, Regulatory Relief, and Consumer Protection Act, MLO transitional licensing authority goes into effect on November 24, 2019.

Under the law, the following individuals may be granted temporary authority to act as a mortgage loan originator ("MLO") while completing state-specific requirements for licensure, such as education or testing:

  • qualified MLOs who are changing employment from a depository institution to a state-licensed mortgage company; and

  • qualified state-licensed MLOs seeking licensure in another state.

NMLS published FAQs entitled, "Temporary Authority to Operate (Temporary Authority) for Mortgage Loan Originators".

Importantly, the FAQs explain that a MLO will not have to submit a separate application for temporary authority. Rather, an MLO applies for a MLO license through NMLS and, if eligible, will automatically receive temporary authority as the applicable state processes the license application. NMLS will be programmed to check certain eligibility requirements, such as criminal history and whether an applicant has had an MLO license application denied, revoked, or suspended. Before a licensing decision is made by the applicable state, an individual with temporary authority will show as being "authorized to conduct business" in the state – the actual license status will not be updated until the state makes a decision with regard to the license application.

An individual with temporary authority may originate loans as if he/she possesses a license in that state. The individual and the loans originated by that individual will be subject to the same rules and regulations as applicable to a licensed MLO.

IMPORTANT component though, mortgage lenders must monitor the status of an individual's license application and temporary authority to act as a MLO. If the MLO's application is ultimately denied, the mortgage lender must reassign any active loans in the pipeline originated by that MLO to a licensed MLO in that state. Further, if a mortgage lender knew of or should have known of a disqualifying event that would cause a license application to be denied, the mortgage lender could face enforcement action by the state for failing to disclose such event. For this reason, it is important to perform background checks and other due diligence on MLOs prior to sponsoring license applications.

Refer to AGMB's prior Compliance Question of the Week: "Is it true there is a new law that permits transitional licensing authority for mortgage loan originators (MLO)?" for detail regarding eligibility requirements and additional information on temporary authority.

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