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Financial responsibility and your MLO endorsement in California

Dec 6th, 2014 | By | Category: Real Estate Broker Law

Bad debts, judgments, foreclosures, second mortgage lien collections, bankruptcies, and FICO issues relating to “financial responsibility” required to maintain California mortgage lending license.

california mortgage lending lawyer

Introduction

The California BRE (Bureau of Real Estate) has adopted regulations that implement the SAFE ACT MORTGAGE LENDING LAW requirements. The regulations are codified at Commissioners Regulation §2758.3.  In short:

“An applicant may be precluded from obtaining a mortgage loan originator license endorsement where his or her personal history includes any liens or judgments for fraud, misrepresentation, dishonest dealing, and/or mishandling of trust funds, or other liens, judgments, or financial or professional conditions that indicate a pattern of dishonesty on the part of the applicant.

This real estate blog discusses some of the key issues that arise in regarding to having the proper evidence of financial responsibility to have and maintain a mortgage lending license MLO endorsement with NMLS.

What is the difference between NMLS and MLO?

The MLO stands for “Mortgage Lending Originator.” This is an endorsement you have to get when you want to be able to originate mortgage loans in California.  The NMLS stands for National Mortgage Licensing System.  This is the entity you apply with to seek your MLO endorsement.  When you are applying for your license, you will authorize your credit report to be pulled.  This gives them a ‘permissible purpose’ under the FCRA to pull and review your credit report.

The Safe Act requires all applicants to be able to show evidence of financial responsibility to maintain the right to originate mortgage loans in California.

If you are reading this blog, you probably already generally understand this requirement, however, you might not understand the specific details and what the BRE will be looking for and things that may cost you your mortgage lending license.  The Safe Act (Secure and Fair Enforcement for Mortgage Licensing Act ) is a federal law, and states have implemented their version of the law, and the individual states can set their implementing rules.  The Consumer Financial Protection Bureau also has oversight and enforcement responsibility.

Some of the “financial responsibility, character and general fitness” issues might arise may come when you are renewing your MLO license.  You may get notice of a refusal to renew your license or refusal to license you in the first place due to one or more types of financial issues such as:

  • Existens of outstanding judgements against you (ex. a judgement or default judgement dealing with fraud, dishonest dealing, or self dealing, misrepresentation, financial elder abuse, conversion, theft, or other grounds that resulted in a judgement against you;
  •  The existence of tax liens (ex. failure to pay the franchise tax board, or IRS);
  • Failure to pay child support;
  • A pattern of foreclosures or bankruptcy filings (especially recent ones);

Keep in mind, the licensing agencies should keep in mind ALL relevant factors, and not focus on one single factor or piece of evidence in regard to your financial situation.

Will the BRE revoke my lending endorsement if I have a low FICO score on my credit report?

According to most sources I have reviewed, the BRE will not focus on your actual credit score (called “FICO score”) in determining whether or not you have “financial responsibility.”  According to one source:

“The BRE will only use credit reports (not credit scores or FICO scores) for the information these reports contain that can verify or refute each applicant’s statements in response to questions about financial history that appear on the MLO license endorsement applications. Applications for a MLO license endorsement will be reviewed individually and an individual determination will be made if any financial responsibility issues are identified.”

Will I lose my real estate lending license if I have excessive and outstanding medical bills?

In most cases it is doubtful that medical bills will lead to a loss of the MLO endorsement.

What does it mean when an issue of “character and fitness” arise in regard to the NMLS endorsement?

In general, if there are issues relating to acts of unfairness or dishonesty, or other problems with professional licensing boards, you could find yourself in a hearing to defend your right to a mortgage lending license.

What does it means when a mortgage lending licensee must show evidence “financial responsibility” under California Business & Professions Code Section 10166.05?

According to California Business & Professions Code 10166.5:

“Notwithstanding any other provision of law, the commissioner shall not issue a license endorsement to act as a mortgage loan originator to an applicant unless the commissioner makes all of the following findings:

(a) The applicant has never had a mortgage loan originator license revoked in any governmental jurisdiction, except that a subsequent formal vacation of a revocation shall not be deemed a revocation.

(b) (1) The applicant has not been convicted of, or pled guilty or nolo contendere to, a felony in a domestic, foreign, or military court during the seven-year period preceding the date of the application for licensing, or at any time preceding the date of application, if the felony involved an act of fraud, dishonesty, a breach of trust, or money laundering. Whether a particular crime is classified as a felony shall be determined by the law of the jurisdiction in which an individual is convicted.

(2) For purposes of this subdivision, an expunged or pardoned felony conviction shall not require denial of an application. However, the commissioner may consider the underlying crime, facts, or circumstances of an expunged or pardoned felony conviction when determining the eligibility of an applicant for licensure under this subdivision or subdivision (c).

(c) The applicant has demonstrated such financial responsibility, character, and general fitness as to command the confidence of the community and warrant a determination that the mortgage loan originator will operate honestly, fairly, and efficiently within the purposes of the article.

In order to support the Commissioner’s finding required by Section 10166.05(c) of the Business and Professions Code the following factors become relevant in California:

(a) The applicant may be precluded from obtaining a mortgage loan originator license endorsement where his or her personal history includes: (1) any liens or judgments for fraud, misrepresentation, dishonest dealing, and/or mishandling of trust funds, or (2) other liens, judgments, or financial or professional conditions that indicate a pattern of dishonesty on the part of the applicant. (b) Notwithstanding the requirements above, where an applicant for a mortgage loan originator license endorsement: (1) is currently holding a restricted real estate license, or

(2) has a right to a restricted license and is making a dual application for the restricted license and mortgage loan originator license endorsement, such applicant must demonstrate, where pertinent, the completion of restitution to any person who has suffered monetary losses through acts or omissions of the applicant that include, but are not limited to, those that are substantially related to the qualifications, functions or duties of a real estate licensee as defined in Section 2910 of these regulations, and/or the discharge of, or bona fide efforts toward discharging, adjudicated debts or monetary obligations to others. NOTE: Authority cited: Section 10080 and 10166.17, Business and Professions Code. Reference: Sections 10150(d), 10151(e), 10166.02(b)(2) and (d), 10166.04(a)(2), and 10166.05 (c), Business and Professions Code.

Will my credit score be used to determine if I have “financial responsibility?”

As noted above, an applicant’s credit score or FICO score is not used per se.  Rather, the CalBRE will use credit reports for “the information these reports contain that can verify or refute each applicant’s statements in response to questions about financial history that appear on the MLO license endorsement applications.”

So the fact that you have a lower FICO than most others is not per se grounds to determine that you lack financial responsibility.  But other things on the credit report (such as recent BK’s, or judgements) can be examined.

What does it take to get a NMLS mortgage lending license (“MLO endorsement”) in California?

You can find the legal requirements for California lenders here.

Who regulates California Financial Lenders and California Residential Mortgage Lenders in California?

Various state agencies may regulate the activities of banks and mortgage lenders in California, such as the Bureau of Real Estate (operating under the Department of Consumer Affairs) which regulates California real estate brokers who engage in mortgage transactions, and the California Department of Business Oversight (DBO).  The Department of Business Oversight basically overtook the California Department of Corporations and California Department of Financial Institutions and oversees banks, California Finance Lender’s (CFL license) and California Residential Mortgage Lenders (CRML).  If you are not sure, contact us to discuss your case below.

What can I do if I have been denied renewal, or had a MLO lending endorsement refused or revoked in CA?

Contact one of our California mortgage lending lawyers.  We can review your case and determine what your legal rights might be, and potential means to challenge your denial.

A junior lender (HELOC) is coming after me to collect on my second mortgage following foreclosure, if I don’t pay the collection agency will I lose my lending license due to “financial responsibility?”

As mentioned above, foreclosures will probably be examined.  When a foreclosure occurs, (or even a short sale or deed in lieu of foreclosure) the bank is engaged in loss mitigation, and may be forced to write off bad debts (ex. the lender not being able to recover deficiency loan balances, or a junior lender that was precluded from collecting their debt under the one action rule).  Regardless, when you have a lender coming after you to collect on the debt (for example the “sold out junior lender” not barred by the one action rule), you might be asking whether failure to pay the lender – or more often than not – a collection agency, this failure to pay the outstanding loan amount COULD be seen as evidence of financial irresponsibility.  However, this is not a foregone conclusion and you should consult with a FDCPA attorney to make the junior lender “validate the debt” or raise defenses under the “one action rule in California” before conceding in to the debt collector.  With repeated foreclosures and recent foreclosures, this could be a factor that could hurt you in getting your MLO endorsement.

Our mortgage lending law services

Our law firm is licensed to practice law in California and Arizona.  We have offices and serve clients in San Diego, Newport Beach (Orange County), Beverly Hills (Los Angeles), San Francisco (Silicon valley and the bay area, San Jose) and Phoenix, Arizona.  We can help with legal issues involving:

1.  RESPA

2.  TILA

3.  SAFE ACT / NMLS / MLO issues

4.  California Financial Lenders

5. BRE broker accusations

6.  Licensing issues with BRE and office of Business Oversight

7.  Ethics hearings

8.  Broker self-audits

9.  Mortgage lending litigation

10.  Real estate arbitration

Contact us for legal services not mentioned on this list.  We offer flexible fees and can structure flat rate legal fees in many situations.

California Mortgage Lending Resources

1.  Regulations of the California Real Estate Commissioner

2.  California BRE Safe Act Frequently Asked Questions

3.  California Business & Professions Code section 10166.01-10166.17

4.  Safe Act 

Contact a California real estate mortgage lending law firm

Steve Vondran, Esq. is a mortgage lending and real estate lawyer.  He can be reached at (877) 276-5084.  You can also fill out the form below (please leave your name, and phone number) and we will contact you, normally within the hour.   [contact_form]

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We are a business and civil litigation firm with a focus on copyright infringement cases involving illegal movie downloads (torrent cases such as London Has Fallen and Malibu Media defense), software audits (ex. Microsoft audits, Autodesk licensing, Siemens PLM defense, SIIA, Adobe and Business Software Alliance defense) and other software vendors threatening piracy and infringement. We also handle cases involving internet law, anti-SLAPP, media law, right of publicity, trademarks & domain name infringement, and we have a niche practice area handling California BRE licensing disputes, accusations, subpoena response, statement of issues and investigations. We have offices in San Francisco, Beverly Hills, Newport Beach, San Diego & Phoenix, Arizona and accept federal copyright and trademark cases nationwide. All content on our website is general legal information only and not a substitute for legal advice, and should not be relied upon. Decisions to hire counsel should not be based on advertising alone. Blogs, videos and podcasts are authored by Steve Vondran, Esq. unless otherwise noted. We can be reached at (877) 276-5084.

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