1.4- What is Role of the Mortgage Loan Originator in Consumer Protection.

An Individual, who for the sake of a compensation or gain, or in expectation of a compensation or gain, takes a Residential Mortgage Application and offers or negotiates terms of a Residential Mortgage Loan is a Mortgage Loan Originator (MLO). Mortgage Loan Originators educate, advise, and guide potential borrowers through the loan application process. MLO's typically work full time in banks or other lending institutions.

A Mortgage Loan Originator is either a Registered Mortgage Loan Originator or a Licensed Mortgage Loan Originator.

Currently, the employees of Depository Institutions that meet the definition of a Mortgage Loan Originator such as Banks or Credit Unions are not required to be licensed and are known as Registered Mortgage Loan Originators. A Registered Mortgage Loan Originator is an Individual who is an employee of  a Depository Institution or its subsidiary that is owned and controlled by a depository Institution, is Regulated by a Federal Banking Agency or an Institution Regulated by the Farm Credit Administration and that is registered with and maintains a unique Identifier. Registered MLO's are required to be registered however are not required to take the pre-licensing or continuing education, nor are required to take the National Test Component with Uniform State test. A Registered Mortgage Loan Originator is not required to be licensed in each state but is required to be registered with the National Multi-State Licensing System and Registry (NMLS).

A Licensed Mortgage Loan Originator is required to obtain a license in each state in which they intend to do business. The Secure and Fair Enforcement Act of 2008 (SAFE Act) is the key federal law that regulates the licensing process and responsibilities of mortgage loan originator. Before an MLO can obtain a license, they must complete their 20 hours of pre-licesing education and pass the National Test Component with the Uniform State Test. The 20 hours pre-licensing education must include 3 hours of Federal Law and Regulation, 3 hours of Ethics and 2 hours of training related to lending standards for nontraditional mortgage product marketplace. The remaining 12 hours are electives. If an applicant intends to conduct business in multiple states, they would complete the additional education depending upon the State.

Initially, when the SAFE Act was enacted, there was a National test and an additional State test for every State. Later in 2013, the Uniform State Test or UST was created. Many States have adopted the UST in place of their own State tests, however there are still a few states that require their own State test like South Carolina, West Virginia, and Minnesota. To pass the National test with UST, an applicant must score at least a 75 percent. After completing a background check, a license is issued. Every year, an MLO is required to renew their license. The applicant must meet the renewal requirements for background check, satisfy continuing education requirements and pay all the required renewal fees.

Since the Job of a Mortgage Loan Originator is to take Residential Mortgage Loan Applications and to offer and negotiate the terms of a residential mortgage loan, therefore the MLO's have a responsibility to protect the interest of the consumers.

Safeguarding the interest of the Public in the  purchase of goods and services against unfair practices in the marketplace is known as Consumer Protection. Consumer Protection laws are intended to prevent businesses from engaging in fraud, deceptive or specified unfair practices in order to gain advantage over competitors or to mislead consumers. The idea is to focus on consumer rights so that they are able to make better choices and to be able to pursue complaints against businesses that violate consumer protection laws. Entities that provide consumer protection include government organizations such as the Federal Trade Commission (FTC) in the United States, self governing organizations such as the Better Business Bureau (BBB) in United States, Canada, England etc. and non-Governmental Organizations (NGO's) that advocate the consumer protection laws and help to enforce them, such as the consumer protection agencies and watchdog groups.

Following is the conduct prohibited for a person or Individual "MLO" subject to the SAFE Act to:

  • Directly or Indirectly employ any scheme, device, or artiface to defraud or mislead borrowers or lenders or to defraud any person
  • Engage in any unfair practice towards any person
  • Obtain property by fraud or misrepresentation
  • Solicit or enter a contract with a borrower that provides substance that the person or individual subject to this Act may earn a fee or commission through "best efforts" to obtain a loan even though no loan is obtained for the borrower
  • Solicit, advertise, or enter a contract for specific interest rates, points, or other financing terms unless the terms are actually available at the time of soliciting, advertising, or contracting.
  • Conduct any business covered by this Act without holding a valid license as required under this Act, or assist or Aid and abet any person in the conduct of business under this ACt without a valid License.
  • Fail to make disclosures as required by this Act and any other applicable state or federal law including regulations.
  • Fail to comply with this Act or rules or regulations promulgated, or fail to comply with any other state or federal law, including the rules and regulations thereunder, applicable to any business authorized or conducted.
  • Make, in any manner, any false or deceptive statement or representation
  • Negligently make any false statement or knowingly and willfully make any omission of material fact about any information or reports filed with a governmetal agency or the Multi-State Licensing System and Registry or in connection with any investigation conducted by the Commissioner or another governmental agency.
  • Make any payment, threat or promise, directly or indirectly, to any person for the purposes of influencing the independent judgement of the person in connection with a residential mortgage loan, or make any payment threat or promise, directly or indirectly, to any appraiser of a property, for the purpose of influencing the independent judgement of the appraiser with respect to the value of the property.
  • Collect, charge, attempt to collect or charge or use or propose any agreement purporting to collect or charge any prohibited fee
  • Cause or require a borrower to obtain property insurance coverage in an amount that exceeds the replacement cost of the improvements as established by the property insurer.
  • Fail to truthfully account for monies belonging to a party to a residential mortgage loan transaction