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 Question : If a mortgage loan originator (MLO) maintains an approved license status when the MLO takes a loan application, for the majority of the application process, and at closing, is it really an issue if the MLO’s license status changes to “unauthorized to conduct business” for just a short period of time between loan application and closing?

Answer:

Yes, this can be a significant issue – even if the MLO is unable to conduct business for just a short period of time while the file is being processed or underwritten. Throughout the entire life cycle of a loan application – from taking the application, throughout the loan application period, and up through closing, a licensed MLO with authorization to conduct business should be tied to a loan application. Failure to maintain a licensed MLO on a loan file throughout the entirety of the application may result in a finding of unlicensed activity by a state regulator and may also result in an unsaleable loan or a repurchase demand. Unlicensed activity is often caught and flagged by a lender’s and/or investor’s compliance software, which will produce an alert, warning, or fail that will not be able to be cleared.

If a MLO’s license status changes, mortgage brokers and lenders must immediately review such changes to determine if the MLO is still authorized to conduct business. If not, and the MLO has active loans in the MLO’s pipeline for that particular state, the lender/broker must immediately reassign those loans to a licensed MLO in the applicable state to prevent unlicensed activity.