New York Amends Laws for Mortgage Loan Originators

by Nicole Legere, Esq.
Associate Counsel

New York Banking Law Article 12-E governing mortgage loan originators (MLOs) was recently amended to conform to federal regulations. Pursuant to the federal SAFE Act, any state MLO licensing schemes that do not satisfy a minimum standard is preempted and HUD is charged with implementing a licensing scheme in those states.
 
These changes were enacted in response to a number of problems and are intended to decrease disreputable and deceptive lending practices. Prior to the enactment of these regulations, MLOs were able to avoid punishment by transferring between different licensing schemas. These new licensing standards will enable New York to better track those individuals engaged in illegal practices. As a result, losses to consumers, as well as the number of foreclosures within the state, are expected to decrease.

Pre-Licensing Requirements
Section 420.11 outlines the pre-licensing educational requirements for applicants seeking licensure as a mortgage loan originator. Under this section, these individuals must complete twenty four hours of educational courses covering both federal and state laws. These courses must be approved by the Nationwide Mortgage Licensing System and Registry (NMLS). This is a change from the previous law which only required these courses to be approved by the Superintendent of Financial Services. Applicants must then obtain a passing grade on the licensing exam, and post a surety bond. Lastly, the applicant must not have had any felony convictions within seven years or any fraud convictions at any time.

License Renewal Requirements
Currently licensed MLOs must complete all the requirements of initial licensing as well as annual educational requirements and payment of all licensing fees. The educational requirements include at least eleven hours of approved classes. These classes must cover federal law, state law, ethics and nontraditional mortgage products. The regulation specifically requires ethics class to cover fraud, consumer protection and fair lending issues. If any of these conditions are not met it may result in automatic termination of the MLO’s license. Violations are required to be reported annually to the Superintendent of Financial Services, and may be challenged by the MLO.

Exemptions
Section 420.2 sets out the exemptions to the general licensing requirements. It includes exemptions for individuals who arrange loans for family members, and those who work for mortgage loan servicers. Other exemptions may be given by the Superintendent of Financial Services for good cause.

Implementation
These amendments were effective on 2/21/2012 and can be read in full on AllRegs at:  http://www.allregs.com/ao/main.aspx?did2=c41c6ffed9a240d4be4f4c30a27bacca

About the Author
Nicole is Associate Counsel and Compliance Specialist for Bankers Advisory, Inc.   She is a member of the Massachusetts Bar Association and the New York Bar Association.