CFPB issues interpretive rule clarifying loan originator screening requirements

Greetings Compliance Friends!

I’d like to start off today’s blog with a brief scenario: ABC Credit Union is seeking to expand its staff of loan originators to accommodate an uptick in loan applications. One new employee comes from another state and although she has applied, does not yet have the required license to conduct loan originator activities in the state where ABC Credit Union is located. ABC’s prudent compliance officer remembers that there is a provision in Regulation Z requiring specific screening and ongoing training for loan originators who are not state licensed and wonders if this rule applies to this new hire. The CFPB explains that this is not the case in its recently issued interpretive rule, clarifying that a loan originator organization is not required to follow the screening and periodic training requirements under section 1026.36(f)(3) of Regulation Z where a loan originator who is required to be licensed is operating with temporary authority due to a pending state license application.

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) prohibits individuals from “engaging in the business of a loan originator” without meeting certain requirements. Loan originators who are employees of federal credit unions are generally required to register as a loan originator under Regulation G and obtain a unique identifier from the Nationwide Mortgage Licensing System and Registry (NMLSR). Loan originators employed at state-chartered credit unions are also required to be registered and may be subject to state licensing requirements under Regulation H or applicable state law. See also, NCUA Risk Alert 14-RA-05.

A state may but is not required to impose licensing requirements for loan originators if such individuals are lawfully registered and maintain their unique NMLSR identifier in accordance with section 1008.103(e)(5) of Regulation H. For loan originators that are not required to be state-licensed, section 1026.36(f)(3) of Regulation Z provides certain screening and ongoing training requirements that a loan originator organization is required to fulfill before its employee may act as a loan originator in a dwelling-secured consumer credit transaction.


continue reading »