MLO Mentor is an ongoing series covering compliance best practices for mortgage loan originators (MLOs). This article continues our discussion in Part I of MLO licensing, origination, and reporting under the California Residential Mortgage Loan Act (CRMLA).

Eligible for a CRMLA license

All entities — corporations, limited liability companies (LLCs), partnerships, trusts and sole proprietorships — are eligible to obtain a CRMLA company license.

Out-of-state entities are eligible for CRMLA licensing without having an office in California. CRMLA licensees which do not have California offices are required to make available their mortgage records within ten calendar days of a request from the DFPI. [Fin C §50120(e)]

However, a CRMLA licensee may not concurrently make or service residential mortgage loans and loans made under a DRE license. This rule is in place to preclude the use of the DRE licensing scheme to evade CRMLA rules. [Fin C §50120(c)]

For Nationwide Mortgage Licensing System (NMLS) licensing, a CRMLA company consists of several user types:

  • the company license, using the MU-1 filing [Fin C §50121];
  • the control person and direct owners, executive officers, using the MU-2 filing; and
  • the mortgage loan originators (MLOs) employed by the company license, using the MU-4 filing. 

Registering for a company account

 To obtain a CRMLA license, the residential mortgage lender needs to first designate an officer or owner of the company as the control person. The control person will be the first point of contact with the NMLS regarding the company’s CRMLA license. They must have the legal authority to act on behalf of the company.

To start the licensing process, the control person needs to complete the Company Account Request Form on the NMLS website.

The Company Account Request Form will ask for basic corporate information, including:

  • the exact legal name of the company;
  • the Internal Revenue Service (IRS) employer identification number (EIN);
  • the state and date of incorporation;
  • the main headquarters street address;
  • the control person’s information; and
  • identification of employee(s) who will be the NMLS account administrators.

Sole proprietors need to use their full legal name. If a sole proprietor does not have an EIN, they are to provide their Social Security number.

An account administrator will have access to all the information about any MLO who is employed by the company, and should be chosen with care.

Once the company account is created, the control person needs to create their own individual account, if they do not already have one. On the individual account, the control person and each direct owner and executive need to provide:

  • their full name as it appears on government-issued ID;
  • their date of birth;
  • their Social Security number;
  • their mailing address;
  • their phone number;
  • their email address; and
  • a security question and answer.

Completing the MU-1

 The MU-1 is the NMLS company filing form. To establish a CRMLA company, the control person needs to log in to the newly created company account, and file the MU-1.

Information to be provided as part of the MU-1 filing includes:

  • any trade names in use;
  • a registered agent for service of process;
  • identification of the qualifying individual of record;
  • disclosing and explaining any disciplinary action against the control person, qualifying individual or owners and executives of the company;
  • audited financial statements showing a minimum net worth of $250,000 [Fin C §50201];
  • a business plan indicating whether the company will lend, service or lend and service residential mortgages;
  • if the business plan includes servicing, details of a loss mitigation program;
  • a certificate of good standing from the California Secretary of State (SOS);
  • formation or incorporation documents, if applicable;
  • a management chart, including a statement that all members, directors and principals are at least 18 years old;
  • an organizational chart;
  • surety bond coverage of $50,000 to $200,000 for each company license, depending on the company’s residential mortgage volume originated and/or serviced in the preceding year [10 Calif. Code of Regulations §1950.205.1];
  • fingerprints and background check authorization for the company’s controlling members;
  • an authorization of disclosure of financial records;
  • a disclosure of other businesses undertaken by the company;
  • federal agency approval;
  • a designated email address registered with the DFPI; and
  • fees paid to the DFPI through the NMLS. [Fin C §§50121-50122]

The total fee due with an MU-1 filing for a CRMLA licensee is $1,100.

CRMLA licenses need to include proof of federal agency approval if they make or service consumer mortgages subject to the approval of any of the following entities:

  • the Federal Housing Administration (FHA);
  • the U.S. Department of Veterans Affairs (VA);
  • the Farmers Home Administration (FmHA);
  • the Government National Mortgage Association (Ginnie Mae);
  • the Federal National Mortgage Association (Fannie Mae); or
  • the Federal Home Loan Mortgage Corporation (Freddie Mac).

Filing the MU-2

A CRMLA licensee consists of a company and the individuals who run the company – be they executives and administrators or the individual MLOs who engage in mortgage origination with the public. All the individuals are required to submit to background and credit checks to ensure they have the character and financial fitness to originate mortgages for consumers.

The MU-2 is the online filing which adds a direct owner, executive officer, control person or qualifying individual to a company application. Filing this form requires each individual to attest to the correctness of their individual employment and disciplinary history.

In addition, material changes to a company or individual’s NMLS filing — including a change in the business plan, ownership, address, disciplinary history — need to be filed with the DFPI commissioner, via the NMLS. [Fin C §50124(a)(6), (a)(10)]

Grounds for denying a license

Though the NMLS administers licensing of CRMLA companies and individual MLOs, the DFPI is the state entity which creates the rules for issuing or denying a license application.

The DFPI commissioner may deny a license application if:

  • the applicant makes a false statement of material fact in the application;
  • within the last ten years, any officer, director, general partner or person owning 10% percent or more of CRMLA company:
    • has been convicted of a crime;
    • pleaded no contest to a crime; or
    • committed any act involving dishonesty, fraud, or deceit, if the crime or act is substantially related to the qualifications or duty of a CRMLA licensee;
  • an officer, director, general partner or person owning 10% or more of the CRMLA company has ever violated the laws or regulations of any state or federal licensing scheme; or
  • the applicant employs a mortgage loan originator who is not licensed in this state, unless the mortgage loan originator is exempt from licensure. [Fin C §50126(a)]

Applicants are required to provide the full details of each crime or dishonest act as part of their disciplinary history. Failure to fully disclose all acts, regardless of when they occurred, is considered a false statement of material fact – which subjects the applicant to a license denial.

A CRMLA license applicant has 90 days from the date of a notice of deficiency to correct any deficiencies in the application. Within 60 days of receiving a complete application via the NMLS, the DFPI will either approve the application or file a statement of issues addressing issues with the application. [Fin C§50126(b)-(c)]

License renewal

Both CRMLA licenses and individual MLO licenses are valid through December 31 of each year if issued prior to November 1st. Endorsements issued on or after November 1st are valid through December 31st of the next year.

Both types of licenses renew every calendar year between November 1st and December 31st. Renewal consists of confirming the information on the NMLS registry is still current and correct.

Renewal processing fees are:

  • $100 for companies;
  • $30 for individuals; and
  • $20 for branches.

Individual MLOs under the DFPI are required to:

  • complete eight hours of NMLS-approved continuing education, including one hour of DFPI-specific mortgage law; and
  • pay $330 renewal fees, plus an additional $100 reinstatement fee for late renewals. [Fin C §50145]

Additionally, CRMLA licensees also pay annual assessment fees based on their mortgage volume in the prior year. The minimum annual assessment is $1,000. [Fin C §50401(c)-(d)]

Editor’s note — For more information about the renewal requirements for your specific agency, please visit the NMLS Annual Renewal Information page. Enroll in firsttuesday’s 8-Hour NMLS CE to renew your California MLO license and learn more about licensing, origination and reporting in your practice.