Monday, March 2, 2009

Are You Working with a Soon-to-be Illegal Loan Originator?

The State of Michigan is worried as few loan officers are complying with Michigan’s new registration law.

Michigan - Back in April of 2008, the Michigan legislature passed a law called the Michigan Loan Officer Registration Act (LORA).

The law was basically passed to get as many of the bad players out of the mortgage industry as possible. Loan officers now have to do the following to work in the industry:

- Take a 24 hour class if they have less than 4.5 years experience in originating loans.
- Pass a test focused on national & state mortgage regulations.
- Get fingerprinted.
- Pass a background check with no felonies in the last 10 years.

The government set up the registration process late and ended up pushing the original cutoff date back from January 1, 2009 to April 1, 2009. Despite all the talk in industry circles about this registration law since it passed, some are still clueless about it! I spoke with one of my competitors in early February and they claimed to have never heard about the law. What’s scary is that they’ll probably be writing loans illegally after April 1st.

Early numbers on the testing showed over 40% of loan originators failing, probably because they thought the test would just be on products and qualifying borrowers for loans. The test is actually focused on knowing the laws regarding loan origination.

It’s interesting to note that loan originators working for federally charted banks are exempt from the state law and don’t have to register with the state.

I just wish the local papers would do a better job of covering this, so the public would understand what’s going on and ask loan originators to validate they are in compliance.

So few originators are actually registering that the state is worried enough to have sent out the following letter to all mortgage brokers in the state:

Department of Energy, Labor & Economic Growth
Stanley “Skip” Pruss, Director

February 24, 2009

TO: All Mortgage Broker, Lender, and Servicer Licensees and Registrants


The Mortgage Brokers, Lenders, and Servicers Licensing Act, 1987 PA 173, as amended, MCL 445.1651 et seq. (MBLSLA) and the Secondary Mortgage Loan Act, 1981 PA 125, as amended, MCL 493.51 et seq. (SMLA) require each mortgage broker, lender, and servicer licensee/registrant to register its individual loan officers with the Office of Financial and Insurance Regulation (OFIR) by April 1, 2009. To “register” as a loan officer means receiving formal notification from OFIR stating that the individual is approved as a loan officer registrant.

I am very concerned with the low number of mortgage loan officer registration applications that have been submitted by mortgage broker, lender, and servicer licensees/registrants pursuant to the MBLSLA and SMLA. To date, less than 1,000 loan officer registrant applications have been submitted in the Nationwide Mortgage Licensing System (NMLS), with only 55 of these applications being complete and receiving formal OFIR approval. Based on past mortgage broker, lender, and servicer annual reports, we estimate that approximately 10,000 loan officers should be applying for loan officer registration.

Each mortgage broker, lender, and servicer licensee and registrant is responsible and is accountable for getting its loan officer registered with OFIR. An individual that is not a registered loan officer is not authorized to be compensated for a mortgage loan transaction originated beginning April 1, 2009.

Violation of the MBLSLA or SMLA by an unregistered loan officer is a misdemeanor, subject to
[pb1] fines/penalties and up to 1 year imprisonment[1]. Violations of the MBLSLA or SMLA intended to circumvent the loan officer registration requirements, including utilization/compensation of an unregistered loan officer, can lead to civil fines and possible revocation of a mortgage company license/registration[2].

Links to the loan officer amendments to the MBLSLA and SMLA have been sent to every mortgage broker, lender, and servicer licensee and registrant. Also, OFIR sent each licensee/registrant multiple e-mail and postal mail notifications that provide updated information and instructions regarding the loan officer registration requirements and timeframes.

Loan Officer Registration Deadline
February 24, 2009

So only 55 out of 1,000 applicants have completed the registration, from an expected pool of 10,000! I'm sure the state is also missing the revenue from all this also.

It’ll be very interesting to see how many loan officers get arrested for operating illegally after April 1st.

Will your loan officer be one of them?

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