California mortgage lending tumbled by all accounts in 2022, according to the annual report required under the California Residential Mortgage Lending Act (CRMLA). 

For some background, the CRMLA requires California Financing Law (CFL) licensing by the Department of Financial Protection and Innovation (DFPI) for mortgage banking operations:

  • whose main business is originating and servicing consumer mortgages; and
  • are not DRE-licensed brokers, federally regulated depository institutions or government agencies. [Calif. Financial Code §50002(c)]

Thus, a CFL license is issued by the DFPI to act as a lender or a servicer of only consumer mortgagesnot business purpose mortgages, which DRE licensees make or arrange. [Fin C §§50000 et seq.]

Editor’s note — the CFL license is distinguished from:

  • DFPI MLO licensing under the California Finance Lender Law; and
  • DRE MLO endorsement of licensees under the Real Estate Law.

 Both the DFPI CFL license and the DRE broker license allow these licensees to make and service consumer mortgages when they are first licensed by the NMLS as registered MLOs. While an CFL licensee is limited in their activities to consumer mortgages, DRE brokers may engage in all variety of real estate sales, leasing and mortgage activity, including engage in business, commercial or agricultural mortgages whether or not mortgages funding these business purposes are secured by an SFR.

Related video:

Mortgage Concepts: The California Residential Mortgage Lending Act (CRMLA) Part 1


Mortgage originations in 2022 spell trouble for 2023-2024

In 2022, the number of consumer mortgage loans originated by DFPI licensees totaled just over 354,000 — down a shocking 70% from the 1.18 million mortgages they originated in 2021.

Further, the number of loans bought and sold by DFPI licensees in 2022 was just 13,900 — down 26% from 18,700 in 2021.

However, anyone with an eye on the real estate or mortgage lending market knows 2021 was a banner year for home sales and mortgage lending of all types. With interest rates artificially pushed to historic lows, refinancing surged and homebuyers and sellers rushed to the scene like lemmings.

Instead, compare 2022’s loan numbers to 2019: the last year before the pandemic de-normalized the real estate (and mortgage) market and generated the problematic ripple effects we now live with.

Compared to 2019, the number of loans originated in 2022 was still down, but not as dramatic as the drop from 2021 — with 2022’s loan counts 38% lower than the 574,000 loans originated in 2019.

Thus, while 2022’s nosedive might have been perceived as a return to normalcy following the volatile pandemic years, it overshot that target by several miles, landing in the dump.

Worse, even as the number of loans originated crashed, the number of new licensees and branches actually rose in a buildup of staff (and office space) for a continuation of 2021’s massive loan numbers. The number of DFPI licensed lenders and services increased 4% in 2022, while the number of branches increased 3%.

The result? Dreadfully fewer loans to go around per licensee.

Related article:

Loan production costs are drowning mortgage brokers

 Fewer mortgage originations — more consumer complaints

DFPI licensees reported 15,200 consumer complaints in connection with nontraditional mortgage products in 2022, up 12% from 2021.

This jump is expected, as nontraditional mortgage products — namely adjustable rate mortgages (ARMs) — began to eat up a larger share of the mortgage market in 2022.

Related video:

Mortgage concepts: The modern-day ARM


Going forward, watch for more consumer complaints as homebuyers who previously used ARMs to extend their purchasing power will be met with higher payments when the initial teaser rate period ends. When these ARMs reset (generally five years forward), the result will destabilize the real estate market.

Already, DFPI licensees reported completing 4,500 foreclosures in 2022 compared to 3,000 in 2021, an increase of 52%.

Worse, as home prices continue to plunge from their May 2022 peak, homebuyers who purchased in 2019-2022 and put down less than 20% will quickly fall underwater in 2023-2024, making default and foreclosure more likely.

Stay on top of your lending practice

How are mortgage industry professionals to avoid the pitfalls of increased consumer complaints and foreclosures?

The CRMLA report identifies best practices from licensees who received no complaints and/or saw foreclosures consist of fewer than 1% of their loan volume in 2022. These successful licensees:

  • conducted an annual review of policies and procedures;
  • conducted regular employee regulatory training (quarterly or annually);
  • conducted quality control reviews of loan samples;
  • required borrower education through clear mortgage costs and descriptions; and
  • produced trend reports to address complaints and identify opportunities for improvement.

Read more about how the mortgage industry is adjusting to the new norm in RPI’s free e-book: MLO Recession Side Hustle Guide.

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MLO networks are your recession lifeline