State Mortgage Broker Licensing - Requirements & Fees

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Clarification of Financial Responsibility and
Proper Loan Officer Supervision

The North Carolina legislature in its 2008 session amended the Mortgage Lending Act (MLA). Among the many changes was clarification that a branch office must be a commercial space and loan officers may not work from home.

In addition, changes proposed by the NC Commissioner of Banks (NCCOB) to the NC Administrative Code became effective immediately upon the completion of the 2008 General Assembly session. The new definitions of “Financial Responsibility” will have a significant impact on all licensees.

In order to better understand why and how they made these regulatory changes, it is instructive to review the three main objectives of the MLA.
The objectives are to:

  1. Individually license mortgage bankers, mortgage brokers, loan officers and now mortgage loan servicers and create rules of conduct regarding proper supervision, accountability and responsible lending.
  2. Require rigorous loan officer education, examination and an application process that includes criminal, personal and financial background checks.
  3. Create leverage and control in order to enforce the regulation and when necessary suspend, revoke or otherwise remove the bad actors from the mortgage industry.
The office of the Commissioner of Banks (OCOB) is responsible for protecting North Carolina consumers from lending abuses. The 2007 legislative session granted greater power and authority to the OCOB. The latest round of changes is the Commissioner's office exercising its new authority.

One major change states:

“…Branch offices must be commercial space in that homes will not
be eligible to be licensed as a principal or branch office.”

Proper Supervision
In meetings with the OCOB, it has been communicated to me that they will no longer allow a residential property to hold a license as an office. What this means to you is:
  • All branch activity must be in a commercial space
  • Loan officers may not work from home as their base of origination activity
  • All loan officers must work under the direct supervision of their branch manager and operate from the branch office
  • The OCOB has established a 60-mile radius as a “reasonable working distance” from the branch office to ensure proper supervision.

Note: The OCOB does understand that for many loan officers a major amount of origination activity takes place away from the branch office such as, in a builder or realtor office or in the home of a borrower. Although the OCOB does allow some limited work such as phone calls to set appointments or call backs to be made from home, they will not allow a residence to be your base of origination activity.

Financial Responsibility
We have now entered the annual license renewal period and there has been considerable concern by loan officers about the new financial responsibility requirements which state that a loan officer must:
  1. Produce a credit report with a Beacon score of 600 or greater, and
  2. Demonstrate a history of satisfying debt obligations in a timely manner as indicated by an absence of outstanding judgments or tax liens within the last seven years.

I have had direct conversations with the heads of the licensing department and the examiners department of the OCOB regarding the implications of this new definition. I am being told that the OCOB is currently interpreting the 600 Beacon score provision primarily for new applicants for loan officer licensure. This means the 600 score requirement was not meant to keep an active loan officer whose score may have fallen below 600 from renewing their license. Do not be concerned about losing your license just because your credit score may have dropped. The OCOB will not be pulling your score as part of the renewal process.

Note: There is however, a circumstance where issues of credit may become a problem when an office is being investigated for possible violations and a “full” examination is being conducted.

…Here is what you need to know.

There are two main types of examinations that are conducted by the OCOB. The first is a “Routine Exam” carried out on all principal licensees on a rotating basis. Generally, this type of examination requires no pre-exam credit or criminal background checks.

Note: As a condition of licensure, you are required to report to the OCOB any criminal or significant financial occurrence that would negatively affect your criminal record or financial standing. A routine examination is not the right time for them to find out you filed for bankruptcy!

The second is called a “Full Exam” which is usually triggered by significant complaints or suspicion of possible violations of the PLA, MLA or other related state and federal laws. I am told that part of the process of a full exam is credit checks on all licensees. Whether or not a sub 600 Beacon score would become an issue in this circumstance, will be a judgment call on the part of the licensing and examination departments. Clearly the OCOB examiners will be considering the “totality of the circumstances” when determining what actions or recourse is appropriate on a case-by-case basis.

Reminder: The new rules require the licensee being examined to reimburse the OCOB for the costs of conducting any company examination.

I will be revealing these and many other new state and federal regulations in two, four-hour continuing education courses. Click here to learn more about times, location and to register.

What we are going through is more than a cycle or marketplace correction. This is a “Top-to-Bottom Reformation" of our entire industry.

…The game has changed and you must learn the new rules.

To protect yourself and your organization you must understand your new risks and responsibilities. I hope to see you in class.

Until then you have my very best.



P.S. Please join attorney Scott Green and I for an extraordinary continuing education event. Click here to reserve your seat.



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