MLO Mentor is an ongoing series covering compliance best practices for mortgage loan originators (MLOs). This article will review MLO licensing, origination, and reporting under the California Residential Mortgage Lending Act (CRMLA). Enroll in firsttuesday’s 8-Hour NMLS CE to renew your California MLO license and learn more about how the CRMLA affects your practice.

The CRMLA was enacted in 1994 to license mortgage bankers whose main business is making and servicing residential mortgage loans. A CRMLA licensee may act as a lender and/or a servicer. [Fin C §§50000 et seq.]

The CRMLA is an alternative to:

  • Department of Financial Protection and Innovation (DFPI) licensing under the California Finance Law (CFL); and
  • Department of Real Estate (DRE) licensing under the Real Estate Law.

Both the CFL and DRE schemes allow licensees to originate and make residential mortgage loans. However, originating residential mortgage loans is only one of many activities which a CFL or DRE licensee may perform.

In contrast, the CRMLA scheme is specifically designed to authorize and regulate mortgage banking activities, such as:

  • making federally related mortgage loans;
  • making residential mortgage loans to finance the construction of a home;
  • purchasing and selling a residential mortgage loan to institutional investors;
  • servicing residential mortgage loans;
  • brokering residential mortgage loans; and
  • providing contract underwriting services for lenders.

MLOs may obtain authorization to originate residential mortgage loans under one or more of these schemes. The MLO’s activities and employment will determine which license to pursue.

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Who needs to be licensed, and exemptions

Anyone who makes or services residential mortgage loans in California needs to hold a CRMLA license. [Fin C §50002(a)]

Individuals and entities exempt from CRMLA licensing include:

  • DRE-licensed real estate brokers who hold DRE MLO endorsements, and their DRE-licensed employees who hold DRE MLO endorsements;
  • individuals and companies licensed under the CFL;
  • federally registered MLOs employed by federally regulated depository institutions or subsidiaries of federally regulated depository institutions;
  • federally chartered banks, savings and loan associations and credit unions;
  • banks, savings and loan association and credit unions with out-of-state charters;
  • lenders who only engage in business, commercial or agricultural mortgage lending; and
  • federal, state or local government agencies. [Fin C §50002(c)]

A residential mortgage loan is a mortgage:

  • secured by a one-to-four unit residential property; AND
  • made by a federally regulated lender;
  • made under a federal mortgage program; or
  • sold to Fannie Mae or Freddie Mac. [Fin C §50003(p)]

A two-tiered licensing structure

An individual or company needs to register with the Nationwide Mortgage Licensing System and Registry (NMLS) and maintain a unique NMLS identifier before they may qualify to make or service a residential mortgage loan under the CRMLA. [Fin C §50002.5(d)]

Under the CRMLA scheme, the NMLS recognizes two types of licenses:

  • the individual MLO license; and
  • the CRMLA license.

An individual MLO is an individual who, for compensation or gain:

  • takes a residential mortgage loan application;
  • offers the terms of the residential mortgage loan; or
  • negotiates the terms of a residential mortgage loan. [Fin C §50003.5(a)]

An MLO is a facilitator — they directly communicate with the borrower and assist the borrower in finding a suitable mortgage product.

In contrast, a CRMLA licensee is an individual or company who makes (lends) or services a residential mortgage loan. [Fin C §50002(a)]

Lending is the process of making the approval decision on the residential mortgage loan application and providing the funds for the mortgage. [Fin C §50003(m)]

Servicing is the process of collecting mortgage payments from the borrower, applying the payments to the balance owed on the mortgage, maintaining the mortgage records and otherwise performing administrative duties in connection with the mortgage.

A CRMLA servicer may service residential mortgage loans it owns, and residential mortgage loans owned by others. [Fin C §50003(x)]

However, CRMLA licensees are only able to make or broker residential mortgage loans through an individual MLO. [Fin C §50002.5(c)]

Individual MLOs, exemptions

To engage in individual MLO activities, an individual must obtain:

  • an individual MLO license under the DFPI [Fin C §50002.5(c)];
  • an active DRE broker license and MLO endorsement; or
  • an active DRE salesperson license and MLO endorsement. [Fin C §50003.5(b)(4)]

Clerical employees, and underwriters and processors employed by CRMLA licensees are not considered MLOs and are exempt from MLO licensing. [Fin C §50003.5(b)(1)]

However, a contract underwriter or processor must hold both a CRMLA license and an individual MLO license to provide underwriting or processing services. [Fin C §50003.6(c)]

A CRMLA licensee is responsible for verifying the MLO license status of each individual MLO they hire or pay. [Fin C §50002.5(a)-(b)]

Applying to be an individual MLO

For an individual to obtain an MLO license and perform mortgage origination services on behalf of a CRMLA licensee, they must first apply for an individual NMLS account by completing the Individual Account Request Form on the NMLS website.

The individual MLO applicant will be provided with an NMLS ID, an NMLS user ID and a password. They then log in to the NMLS system to file their application for an MLO license using the NMLS MU-4 online filing.

Filing the MU-4

The MU-4 filing will require the MLO applicant:

  • complete 20 hours of pre-licensing education, including 2 hours of DFPI-specific mortgage law [Fin C §50142(a)];
  • successfully pass an exam administered by the NMLS on federal and state mortgage lending laws [Fin C §50143];
  • submit a statement of citizenship to the DFPI [Fin C §50000 et seq.];
  • authorize fingerprint submission for a background check; and
  • pay fees to the DFPI through the NMLS.

Editor’s note — firsttuesday’s 20-hour pre-licensing MLO course offering is approved by the DFPI to meet this education requirement. Learn more at

Additionally, individual MLOs need to show they’ve:

  • never had an MLO license revoked by any regulatory agency;
  • never been convicted or pled guilty or no contest to a felony involving fraud, dishonesty, a breach of trust or money laundering during seven years prior to the application;
  • demonstrated financial responsibility, character and general fitness to operate as an honest and fair MLO; and
  • obtained employment with a CRMLA licensee. [Fin C §50141]

Fees for obtaining a CRMLA licenses are $330 for an individual MLO license, plus a $15 credit report fee and a $36.25 background check fee, all paid through the NMLS.

Next week, we’ll discuss CRMLA licensing for companies and the procedures involved.