Article By: Ben Giumarra, Spillane Consulting Associates, Inc.
Trying to do the right thing might make things worse here.
If the definition of “loan originator” is broader under TILA than under the SAFE Act (which it is), why do so many institutions have more NMLS-licensed employees than true originators (who are subjected to TILA qualification, compensation, and training requirements?)
Short Answer
Well, they shouldn’t. If you have more people with NMLS licenses than who actually originate mortgages, this means either:
- There are NMLS-licensed employees who are out of compliance with TILA requirements, or
- There are employees with NMLS licenses that don’t need them (and this just makes it harder to keep them safe from TILA requirements, in that they have a license and aren’t allowed to use it)
“Playing it safe” here and getting everybody an NMLS license actually puts your institution at greater risk. By providing an NMLS number, they’re permitting those persons to act as mortgage originators. But for many management and branch personnel, they aren’t being subjected to the strict TILA regulations that place requirements on compensation, qualifications, training, and more for “mortgage originators.”
Problematically, the TILA definition for “mortgage originator” is actually broader than the NMLS definition of the same. So TILA casts a broader net.
- If an employee needs an NMLS number, they need to comply with TILA.
- If they’re not actually acting as a mortgage originator (and not complying with TILA), having an NMLS “just to be safe” is actually more dangerous because it appears that the institution is permitting them to engage in origination activities.
Full Answer & Analysis
Let’s go through this piece by piece.
SAFE Act Definition
This regulation applies to “loan originators”, which it defines as someone who:
- Takes a residential mortgage loan application; and
- Offers or negotiates terms of a residential mortgage loan for compensation or gain.
TILA Definition
This regulation also applies to “loan originators”, but defines the term more broadly as anyone :
- Who, in expectation of direct or indirect compensation or other monetary gain or for direct or indirect compensation or other monetary gain, performs any of the following activities: takes an application, offers, arranges, assists a consumer in obtaining or applying to obtain, negotiates, or otherwise obtains or makes an extension of consumer credit for another person; or through advertising or other means of communication represents to the public that such person can or will perform any of these activities.
You can see how much broader this is, right? If you’re triggering the need for an NMLS license, you definitely should be complying with TILA.
TILA Requirements Similar, But Tougher than SAFE Act
Where institutions get in trouble is assuming that meeting SAFE Act requirements will protect them from TILA. This just isn’t true. TILA requires mortgage originators to have written compensation plans and that a credit report is pulled prior to hiring. These are just two specific examples of requirements that go beyond the SAFE Act — there are dozens more.
n Other News
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This Treasury report on the state of mortgage banking, including recommendations related to banks and credit unions and the CFPB, is a pretty good read. Summary here
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Something lighter:
– Socrates (his opening statement to jury, as told by Plato in his book “Apology”)
Listen to Socrates! Coming in hot and railing against the lawyers use of unnecessarily fancy legal mumbo jumbo. Some things just don’t change!
To Whom It May Concern … We shall hereto and herewith dialogue again approximately seven (7) business days from the date on which you hath been in receipt of this distributed publication …
Thank you to Ben Giumarra, Spillane Consulting Associates, Inc., a member of our Education Committee, who with the support of other experts at SCA have put together this newsletter.