MLO Mentor: California Residential Mortgage Loan Act, Part II
MLO Mentor is an ongoing series covering compliance best practices for Mortgage Loan Originators (MLOs). This article continues our discussion in Part I on licensing, origination and MLO reporting under the California Residential Mortgage Law (CRMLA).
Eligible for a CRMLA license
All entities – corporations, limited liability companies (LLC), partnerships, trusts and sole proprietorships – are eligible to obtain a CRMLA business license.
Out-of-state entities are eligible for the CRMLA license without having an office in California. CRMLA licensees who do not have offices in California are required to make their mortgage records available within ten calendar days of a request from the DFPI. [Fin C §50120(e)]
However, a CRMLA licensee may not concurrently originate or service residential mortgage loans and loans made under a DRE license. This rule is in place to prevent the use of the DRE licensing system to evade CRMLA rules. [Fin C §50120(c)]
For Nationwide Mortgage Licensing System (NMLS) licenses, a CRMLA company consists of several types of users:
- the business licenseusing the MU-1 repository [Fin C §50121];
- the controlling person and the direct owners, managers, using the MU-2 file; and
- mortgage originators (MLOs) employed by the company’s license, using file MU-4.
Opening a business account
To obtain a CRMLA license, the residential mortgage lender must first designate an officer or the owner of the business as control person. The vetting person will be the first point of contact with the NMLS regarding the company’s CRMLA license. They must have the legal authority to act on behalf of the company.
To start the authorization process, the controlling person must complete the Business Account Application Form on the NMLS website.
the Business Account Application Form ask for basic company information, including:
- the exact corporate name of the company;
- Employer Identification Number (EIN) from the Internal Revenue Service (IRS);
- state and date of incorporation;
- the main address of the registered office;
- the information of the controlling person; and
- identification of the employees who will be administrators of the NMLS account.
Sole proprietors must use their full legal name. If a sole proprietor does not have an EIN, they must provide their social security number.
An account administrator will have access to all information about any MLO employed by the company and should be chosen carefully.
Once the company account is created, the controlling person must create their own individual account, if they do not already have one. On the individual account, the controlling person and each direct owner and manager must provide:
- their full name as it appears on the government-issued ID;
- their date of birth;
- their social security number;
- their postal address;
- their telephone number;
- their e-mail address; and
- a security question and answer.
Complete the MU-1
the MU-1 is the filing form of the NMLS company. To establish a CRMLA company, the controlling person must log in to the newly created company account and file the MU-1.
The information to be provided as part of the MU-1 file includes:
- any trade names used;
- a registered agent for the process service;
- identification of the eligible person on file;
- disclose and explain any disciplinary action against the Reviewing Person, Qualified Person, or Company Owners and Officers;
- audited financial statements showing a minimum net worth of $250,000 [Fin C §50201];
- a business plan indicating whether the company will lend, service or lend and service residential mortgages;
- if the business plan includes maintenance, details of a loss mitigation program;
- a Certificate of Good Standing from the California Secretary of State (SOS);
- incorporation or incorporation documents, if any;
- a dashboard, mentioning in particular that all members, administrators and principals are at least 18 years old;
- an organizational chart;
- bonding coverage of $50,000 to $200,000 for each business license, depending on the business’ volume of residential mortgages issued and/or serviced in the previous year [10 Calif. Code of Regulations §1950.205.1];
- fingerprinting and background check authorization for controlling members of the company;
- authorization to disclose financial documents;
- disclosure of other activities undertaken by the company;
- federal agency approval;
- a designated email address registered with the DFPI; and
- fees paid to the DFPI through the NMLS. [Fin C §§50121-50122]
Total fees due with an MU-1 deposit for a CRMLA licensee is $1,100.
CRMLA licenses must include proof of federal agency approval if they originate or service consumer mortgages subject to the approval of one of the following entities:
- the Federal Housing Administration (FHA);
- the US Department of Veterans Affairs (VA);
- the Farmers Home Administration (FmHA);
- the Government National Mortgage Association (Ginnie Mae);
- the Federal National Mortgage Association (Fannie Mae); or
- the Federal Home Loan Mortgage Corporation (Freddie Mac).
Deposit of the MU-2
A CRMLA licensee consists of a business and the people who run the business – whether executives and directors or individual MLOs who engage in mortgage origination with the public. All persons are required to submit to background and credit checks to ensure that they have the character and financial capacity to offer consumer mortgages.
the MU-2 is the online filing that adds a direct owner, officer, controlling person, or qualified person to a business application. Filing this form obligates each individual to attest the accuracy of their professional and disciplinary history.
In addition, material changes to a company or individual’s NMLS record – including a change in business plan, ownership, address, disciplinary history – must be filed with the DFPI Commissioner, through the NMLS. [Fin C §50124(a)(6), (a)(10)]
Reasons for Denial of License
Although the NMLS administers the licenses of CRMLA companies and individual MLOs, the DFPI is the state entity that creates the rules for issuing or denying a license application.
The Commissioner of the DFPI may refuse a license application if:
- the applicant misrepresents a material fact in the application;
- over the past ten years, any officer, director, general partner or person holding 10% or more of CRMLA:
- has been convicted of a felony;
- did not contest a crime; or
- committed any act involving dishonesty, fraud or deception, if the crime or act is substantially related to the qualifications or duty of a CRMLA licensee;
- an officer, director, general partner, or person owning 10% or more of CRMLA has ever violated the laws or regulations of any state or federal licensing regime; or
- the applicant employs a mortgage originator who is not licensed in that state, unless the mortgage originator is exempt from licensure. [Fin C §50126(a)]
Applicants are required to provide full details of each crime or dishonest act as part of their disciplinary history. Failure to fully disclose all acts, regardless of when they occurred, is considered a misrepresentation of material fact – subjecting the plaintiff to a denial of license.
A CRMLA license applicant has 90 days from the date of a notice of deficiency to correct any discrepancies in the application. Within 60 days of receiving a complete application through the NMLS, the DFPI will either approve the application or file a Statement of Issues addressing the issues with the application. [Fin C§50126(b)-(c)]
CRMLA licenses and individual MLO licenses are valid until December 31 of each year if issued before November 1. Amendments issued on or after November 1 are valid until December 31 of the following year.
Both types of licenses are renewed every calendar year between November 1 and December 31. Renewal consists of confirming that the information in the register of the NMLS is always up-to-date and correct.
The renewal processing fees are:
- $100 for businesses;
- $30 for individuals; and
- $20 for branches.
Individual MLOs under the DFPI are required to:
- complete eight hours of NMLS-approved continuing education, including one hour of DFPI-specific mortgage law; and
- pay a $330 renewal fee, plus an additional $100 reinstatement fee for late renewals. [Fin C §50145]
Additionally, CRMLA licensees also pay an annual appraisal fee based on their mortgage volume in the previous year. The minimum annual appraisal is $1,000. [Fin C §50401(c)-(d)]
Editor’s Note — For more information on your specific agency’s renewal requirements, please see the NMLS Annual Renewal Information Page. Register for the first tuesday 8 hour CE NMLS to renew your California MLO license and learn more about licensing, origination and reporting in your practice.