New education, testing, credit and background checks take effect October 1st

Big changes are taking place in the mortgage loan origination industry today as a result of the ‘mortgage meltdown’ and the Federal SAFE Act of 2008. New requirements — including licensing, registration, education, examination, fingerprinting and credit checks– are coming up soon. These changes will affect not only who can remain in the business but, maybe even more importantly, who will be forced to leave the mortgage industry. In addition, those looking to begin in the business will be facing more stringent regulation and oversight than in the past.

So, what are the changes and how do they affect the mortgage industry?

In 2008, Congress passed the SAFE Mortgage Licensing Act. This Act created the Nationwide Mortgage Licensing System, or NMLS, and Registry for the residential mortgage industry. The Act sets forth procedures, requirements (including education and testing), and standards for mandatory registration and state licensing of Mortgage Loan Originators, or MLOs. It also requires the federal banking regulators to develop and maintain a system for registering depository institution employees as Registered Loan Originators with the Registry.

Florida Office of Financial Regulation (FLOFR)

As the residential mortgage industry has taken its lumps for its perceived role in the real estate boom and subsequent bust, the public has pushed for changes in loan origination oversight. That’s where the 2008 SAFE Act came in and created regulation and oversight for an industry hammered by fraud and deceit.

By requiring all MLOs to meet a national education and examination requirement, as well as required credit checks, it is the goal of Congress to weed out the non-professionals and license those who have conducted business honestly. The more stringent guidelines also ensure that individuals just entering the business will be held to higher standards of professionalism and consumer protection.

While more than 40,000 Florida mortgage brokers have left the business in the past 3 years, those who remain are licensed and regulated by the Florida Office of Financial Regulation. Licensing requirements have included pre-licensing education, testing, filing of an application, paying initial license and renewal fees, and biennial completion of state-approved continuing education.

National Mortgage Licensing System (NMLS)

All Florida mortgage brokers will need to meet the new NMLS requirements beginning October 1, 2010. Florida mortgage brokers will need to re-apply with the Office of Financial Regulation and register with NMLS. In order to do so, they will need to comply with SAFE Act guidelines that require 1) completion of at least 20-hours of approved mortgage education; 2) pass a 100-question SAFE Act National Exam; 3) pass a 50-question SAFE Act State Exam; 4) be fingerprinted; 5) submit to a credit check; 6) be approved for NMLS registration by obtaining a license from FLOFR; 7) pay hundreds more in licensing and registration fees; 8) attend annual continuing education; and 9) renew the license and registration annually.

Transition period

Because of the expected 30,000+ new applications, the State of Florida will allow currently licensed mortgage brokers to continue working while waiting for their new license to be issued and their NMLS registration to be completed. FLOFR has indicated that the initial licensing and registration process may not be completed until sometime in 2011. Previously-exempt loan originators working in Florida as employees under licensed mortgage lenders or correspondent mortgage lenders have been advised by FLOFR to obtain a Florida mortgage broker license before August 1, 2010 to be allowed to operate during the lengthy licensing process. Failure to do so will force these individuals to leave the business on October 1, 2010 or risk penalties authorized under Florida Statutes.

Rick Larson, co-founder and manager of Larson Educational Services, a Florida Mortgage Business School and NMLS Approved Course Provider in Fort Myers, Florida, sums it up this way. “If you are in the Florida mortgage loan origination business and do not have a Florida mortgage broker license, it is highly recommended you get one as soon as possible so you can continue working while your Florida loan originator application is in the approval process. Otherwise, you’ll be out of business until the state issues your license. That could be well into 2011.”

Larson has observed a lot of confusion and frustration regarding the new requirements, but he has been through this before. “Throughout the 1980’s, licensing and education requirements for real estate agents were implemented in response to a similar uprising from the public regarding dual agency and sketchy property disclosures. Then in 1989 we had the S&L bailout for which real estate appraisers were made the fall guy. FIRREA created federal oversight and requirements that forced real estate appraisers into the classroom and test centers across the country. In each case there was a period of transition during which the industry was given time to catch up with the new requirements. It’s no surprise that the mortgage industry is bubbling with anger, confusion, rumor and myth right now because that’s the way it always goes. By the middle of 2011 everyone will have the requirements figured out and the whole process will become second nature. In the meantime, as it was in the past, education is the key. As long as there is an understanding of what is happening and why, everybody can make the transition that is required and continue working.”

What to do if you already have a Florida mortgage broker license

Even though you cannot apply for the new MLO license until October 1, 2010, you can begin part of the approval process by completing Steps 1 – 3:

Step 1: Create an account with NMLS
Go to www.stateregulatoryregistry.org/NMLS to obtain your own NMLS ID, also known as your Unique NMLS Identification Number.

Step 2: Register for the SAFE Mortgage Loan Originator Test — National Component
By creating an account, you will be allowed to then enroll for the NMLS National Exam. This exam is available to you right now and you can schedule to take it after creating your account and paying the testing fee of $92 through the NMLS website. You will be given access to schedule the exam with one of the testing providers, either PearsonVUE or Prometric. Testing centers are available throughout the country and the testing provider you use will be dependent on the city in which you choose to take your exam.

Step 3: Study and PASS the National Exam
Larson, who has prepared more than 100,000 students nationwide for professional examinations, says “There is no correlation between industry expertise and test-taking expertise. I have seen thousands of top-producing professionals seek help because they’ve struggled to pass the exam. The saddest part about failing once is that the second time through is usually even harder because the test-taker is left to second-guess decisions made on the first exam. The key is proper preparation the first time.”

Larson continues, “That’s why I wrote a home study manual with key notes, sample questions and two 100 question Sample Exams very similar to the real one. Any prospective loan originator in the United States will benefit from this course before sitting for the National Component exam. We’re also offering the course face-to-face throughout our home state of Florida.”

NMLS officials indicate that the nationwide pass rate on the exam is 67%. Anybody failing the exam must wait 30 days and pay the exam fee again before they can take the exam again. If a passing score is not achieved after the 4th attempt, the waiting period goes up to 180 days. Therefore, exam preparation is not only the key to passing the exam on the 1st attempt, but proper preparation will also allow for a timely approval and diminish any waiting time some may see between test attempts.

A word about “grandfathering”

Each state falling under the SAFE Act requirement has the choice of “certifying” their existing pre-license education as meeting the new 20 Hour SAFE Comprehensive education requirement. This means that each state can choose whether or not they will require their existing mortgage license holders to take the 20 Hour Course. Some states have decided to accept previous education. Other states have decided not to. Florida has decided that all currently licensed Florida mortgage brokers will not need to complete any additional education.

Future Step 4: Pass the SAFE Mortgage Loan Originator Test — State Component
Each applicant must successfully complete a 50-question Florida State Component in addition to the 100-question National Component. Questions will focus on specific state laws and administrative rules. The exam is in the formative stages as of this writing, but it must be available no later than October 1, 2010. If the applicant has passed the Florida mortgage broker exam as of January 1, 2004, they are exempt and will not be required to take the Florida State Component exam.

Future Step 5: Fingerprints, credit report and application

Prospective mortgage loan originators will be fingerprinted and will submit an application and fees beginning October 1, 2010. FLOFR and NMLS will work in conjunction to process the applications and register each individual MLO. Current Florida mortgage brokers who timely complete the MLO application process will be allowed to continue working during the transition process until the new license is in hand.

Finally, Larson summarizes, “There will be confusion, myth and rumor during this transition period, but the changes are happening and the new requirements must be met. If you’re affected by these changes, my advice is to get going now. Create an account at NMLS; register for the National Exam; prepare, practice and pass.”

For the most current licensing and testing information go to www.LarsonEd.com. There you will find helpful explanations, links to NMLS, and application instructions. You will also find exam preparation materials and live course schedules. Information is also available by contacting Larson Educational Services experts at (239) 344-7510.

Larson Educational Services is a Fort Myers-based family-owned mortgage, real estate and CAM school. It is an NMLS PROVIDER ID: 1400171; its 20 Hour SAFE Comprehensive Mortgage Loan Originator Course is approved as NMLS COURSE ID: 1181. To inquire about an on-site exam preparation for your group, ask for Brad Larson.

This release prepared by:
Brad Larson, Larson Educational Services, 1400 Colonial Blvd, Suite #44,Fort Myers, FL 33907. 239-344-7510. Read about us at http://www.LarsonEd.com.