Types of loan originators: the MLO license endorsement and the SAFE Act

Who is an originator?

The federal SAFE Act is the Secure and Fair Enforcement for Mortgage Licensing Act of 2008. California implements an MLO license endorsement route for real estate licensees. Under California Business and Professions Code section 10166.01, an individual who takes a residential mortgage loan application or offers or negotiates its terms for compensation or gain is a mortgage loan originator. Taking the application can qualify even without negotiating terms.

For this California route, section 10166.02 requires both a maintained real estate license and a maintained MLO endorsement before engaging in business as an originator. A salesperson cannot substitute the responsible broker's endorsement for the salesperson's own. NMLS, the Nationwide Multistate Licensing System and Registry, supports licensing, registration, and records; it is not a substitute for the required authorization.

Classify the activity, not the job title

Purely administrative or clerical work is excluded, subject to the independent contractor exception. Collecting processing information differs from offering loan terms. Under section 10166.03, a processor or underwriter who does not hold out to the public as an originator need not obtain the endorsement, but an independent contractor processor or underwriter employed by an originator must maintain both the endorsement and a valid NMLS unique identifier.

Real estate brokerage services alone are excluded unless compensation comes from a lender, another originator, or an agent of either. Section 10166.01 also excludes individuals licensed or registered under the Financial Code and SAFE Act from this article's definition. Do not turn the DRE route into a requirement that everyone in the mortgage industry obtain a real estate license.

Qualifying and remaining qualified

Section 10166.05 requires financial responsibility, character, general fitness, education, and written testing. A prior MLO license revocation bars issuance unless formally vacated. Felonies within the preceding seven years are disqualifying; felonies involving fraud, dishonesty, breach of trust, or money laundering are disqualifying regardless of age. An expunged or pardoned conviction does not require denial, although the Commissioner may consider the underlying circumstances.

Section 10166.06 requires at least 75 percent correct on the qualified test. Retesting ordinarily requires at least 30 days; three consecutive failures require at least six months before another test.

For renewal, section 10166.09 requires continued eligibility and annual continuing education. Section 10166.10 requires at least eight hours annually, including at least three in federal law and regulations, two in ethics, and two in nontraditional mortgage lending standards. Those subject minimums total seven hours, not the complete eight-hour requirement. The same approved course cannot satisfy the requirement in the same or successive years. Approved instructor credit is two hours for each hour taught.

These rules describe the California real estate license endorsement route; classification and exceptions depend on the individual's actual activities and licensing status.