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Licensing and Regulation for the AZ MLO

Learn about the licensing and regulation requirements for Mortgage Loan Originators in Arizona, including key terms, license issuance, and renewal processes.

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Licensing and Regulation for the AZ MLO

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  1. Licensing and Regulation for the AZ MLO Arizona State Elective: Licensing and Regulation for the AZ MLO Chapter 4

  2. Disclaimer: Names of all persons, companies, and entities in any documented example have been changed. Therefore, if further research is desired, names will differ in the actual case law from that presented within the course. If further research is desired in regards to specific case law, research is best performed by visiting each specific state’s department of financial institutions website. Each state may use varying versions of this department name. Some case law may be easily researched and other states are extremely protective of case law and extended research may be required. As an example, to research Florida case law, first visit the Florida Office of Financial Regulation website and proceed to the Final Administrative Actions page where a search engine will be presented. For California, the Consumer Affairs agency must be selected from their state website (www.ca.gov). Researchers must then move through the following pages, Licenses, Press Release, and Board of Real Estate to arrive at the Disciplinary Actions page to research the case law. Arizona State Elective: Licensing and Regulation for the AZ MLO Disclaimer

  3. Clerical or Support Duties Unique Identifier Institutional Investor Non-Institutional Investor Responsible Individual Continuing Education Unit Arizona State Elective: Licensing and Regulation for the AZ MLO Key Terms Refer to page 95

  4. Mortgage Loan • In Arizona, the term mortgage loan, is defined as “a loan secured by a mortgage or deed of trust or any lien interest on real estate located in this state created with the consent of the owner.” • Mortgage Loan Closing • Under Arizona statute, a mortgage loan closing is “the day by which • All documents relating to the mortgage loan have been executed. • All documents relating to the mortgage loan have been recorded. • All monies have been accounted for under the terms of the escrow instructions.” • If a loan involves a sale, a fourth requirement is included: • Property ownership must be transferred and recorded. Arizona State Elective: Licensing and Regulation for the AZ MLO Arizona Mortgage Loan Origination See A.R.S. §6-901.12-14 Definitions. Refer to page 96

  5. Loan originator • “Any natural person, who for compensation or gain or in the expectation of compensation or gain, does any of the following: • Takes a residential loan application. • Offers or negotiates the terms of a residential mortgage loan. • On behalf of a borrower, negotiates with a lender or noteholder to obtain a temporary or permanent modification in an existing residential mortgage loan agreement” Arizona State Elective: Licensing and Regulation for the AZ MLO Mortgage Loan Originators See A.R.S. §6-991(12) Definitions. Refer to page 97

  6. Unlicensed loan origination activity is subject may result in: • Disciplinary action • Criminal action • Only a natural person may hold an MLO license. • MLO license applicants must complete twenty (20) hours of education: • Three (3) hours of federal law. • Three (3) hours of ethics, which shall include instruction on fraud, consumer protection and fair lending issues. • Two (2) hours of training related to lending standards of the nontraditional mortgage. • Twelve (12) hours of alternative subjects related to the mortgage industry. Arizona State Elective: Licensing and Regulation for the AZ MLO Mortgage Loan Originator License Issuance See A.R.S. §.6-991.03.B Licensing; Renewal; Qualifications; Application; Fees. Refer to page 97-98

  7. MLO license applicants must also: • Pass a loan originator’s examination • Obtain a unique identifier number through the NMLS. • Deposit a bond executed by the applicant’s employer or registered exempt person as principal and a surety company licensed to do business in Arizona. • Submit fingerprints to the Department. • Pay an amount required by the Superintendent into the Mortgage Recovery Fund (currently $100 annually) or be listed on a corporate surety bond with $200,000 or more. • Pay an application fee for the application (currently $350). • The Superintendent has 120 days to issue or deny a license. Arizona State Elective: Licensing and Regulation for the AZ MLO Mortgage Loan Originator License Issuance (cont.) See A.R.S. § 6-991.04.K Issuance of License Refer to page 98

  8. Licenses shall be issued for a one-year period. • On or before December 31 of each year, a loan originator must: • Pay the renewal fee for the license. • Provide certificates of eight (8) hours of continuing education training during the year. • Pay a sum to the Mortgage Recovery Fund. • Within five (5) business days after a licensee’s termination, the following steps must be taken: • Notify the superintendent of the licensee’s termination; and • Return the license to the superintendent. Arizona State Elective: Licensing and Regulation for the AZ MLO Mortgage Loan Originator License Renewal See A.R.S. § 6-991.04.K Issuance of License; Notice From Employing Mortgage Broker, Mortgage Banker or Consumer Lender or Registered Exempt Person; Renewal; Inactive Status; Address Change; Fee. Refer to page 98

  9. Those not required to be licensed as an MLO include: • An individual engaged as a loan processor or underwriter under the direct supervision of the mortgage broker or banker. • A real estate licensee, licensed under Title 32, who solely performs real estate brokerage activities. • A person who only engages in the financing of timeshare plans. • A person who makes five or fewer mortgage loans per year. • A person who takes back a purchase money mortgage in connection with the sale of residential real estate. • An employer making a mortgage loan to an employee. • A registered loan originator. Arizona State Elective: Licensing and Regulation for the AZ MLO Mortgage Loan Originator Licensing Exemptions See A.R.S. §6-991.01 Exemptions. Refer to page 99

  10. The superintendent may deny, suspend, or revoke a license if an applicant or licensee: • Does not have good character. • Has violated any law, rule or order. • Has been convicted of or pled guilty to a misdemeanor involving fraud, dishonesty, or breach of trust. • Has had a final judgment entered against him in a civil action on grounds of fraud, deceit or misrepresentation. • Has had an administrative agency of the U.S. enter an order involving fraud, deceit, or misrepresentation. • Has made a material misstatement or suppressed information on the application for a license. • Has had a related license revoked or denied in any state. Arizona State Elective: Licensing and Regulation for the AZ MLO Denial, Suspension or Revocation of an Arizona License See A.R.S. § 6-991.05.A Denial, Suspension, or Revocation of Licenses. Refer to page 99

  11. Mortgage loan originator prohibited acts include: • A loan originator may not accept any money or document in connection with an application for a mortgage loan. • An individual may not receive compensation for arranging a mortgage loan if the individual is not licensed. • Each licensed loan originator must register with and maintain a valid unique identifier issued by the NMLS. • A loan originator may not advertise, display, distribute, broadcast, or televise solicitation of mortgage business. • A loan originator shall not make or negotiate a loan that is less than the minimum amount that the loan originator's employer is allowed to make, or not secured by a mortgage or other lien interest in real property. Arizona State Elective: Licensing and Regulation for the AZ MLO Prohibited Acts of a Mortgage Loan Originator See A.R.S. § 6-991.02 Prohibited Acts. Refer to page 100

  12. Mortgage loan originator prohibited acts include: • A loan originator may only be employed by one mortgage banker or broker at a time. • A loan originator shall not collect compensation for rendering services as a real estate broker or salesperson unless: • The loan originator is licensed. • The mortgage banker/broker has disclosed the specified agreement to the person from whom the compensation is collected at the time the loan application is received. • A loan originator shall not receive or disburse monies in servicing or arranging a mortgage loan. • A loan originator may not make a false promise or misrepresentation in the course of the mortgage business. Arizona State Elective: Licensing and Regulation for the AZ MLO Prohibited Acts of a Mortgage Loan Originator See A.R.S. § 6-991.02 Prohibited Acts. Refer to page 100

  13. Mortgage loan originator prohibited acts include: • A loan originator may not fail to account for or disburse money related to a mortgage loan transaction agreements. • A loan originator shall not engage in illegal or improper business practices. • A loan originator may not require a person seeking a loan to obtain property insurance coverage in an amount that exceeds the replacement cost of the improvements. • A loan originator may not originate a mortgage loan unless employed by a mortgage broker, mortgage banker, or consumer lender. Arizona State Elective: Licensing and Regulation for the AZ MLO Prohibited Acts of a Mortgage Loan Originator See A.R.S. § 6-991.02 Prohibited Acts. Refer to page 101

  14. Mortgage loan originator prohibited acts include: • A loan originator shall not advertise or solicit mortgage business without: • The name and license number as issued on the employing individual’s principal place of business license. • Approval of the employing mortgage broker, mortgage banker, consumer lender or registered exempt person. • The unique identifier the loan originator maintains with the NMLS. • A loan originator must make the books and records relating to the loan originator's operations available to the superintendent. • A independent contractor loan processor or underwriter must obtain and maintain a license. • Individuals engaging in loan processor or underwriter activities shall not represent they can perform loan origination activities. Arizona State Elective: Licensing and Regulation for the AZ MLO Prohibited Acts of a Mortgage Loan Originator See A.R.S. § 6-991.02 Prohibited Acts. Refer to page 101

  15. Arizona Statutes define a mortgage loan originator as any natural person who does all of the following EXCEPT • negotiates a term or rate of the loan. • negotiates with a current lender on behalf of the borrower. • requests a W-2 from a borrower subsequent to an application. • takes an application. Arizona State Elective: Licensing and Regulation for the AZ MLO Check Your Knowledge Refer to page 102

  16. Mortgage loan originator licensing would be required for a(n) • employer making a mortgage loan to an employee. • licensed real estate agent who performs only real estate brokerage activities. • loan processor or underwriter. • person who makes more than five mortgage loans per calendar year. Arizona State Elective: Licensing and Regulation for the AZ MLO Check Your Knowledge Refer to page 102

  17. To obtain a mortgage loan originator license, all of the following must be attained EXCEPT • fingerprinting performed for a background check. • organization as a PLLC. • a score of 75% on a national test. • three hours of ethics pre-licensing training. Arizona State Elective: Licensing and Regulation for the AZ MLO Check Your Knowledge Refer to page 102

  18. A responsible individual must: • Be a full-time resident of the State of Arizona. • Be an employee, not independent contractor, of the licensed entity. • Be active in the management of the business affairs of the company. • Have three (3) years’ experience in the mortgage banking business. • The continuing education requirement is twelve (12) hours of annual education. • If a responsible individual leaves the employ of the mortgage entity, the Department must be notified within ten (10) days of the separation. The responsible individual must be replaced within ninety (90) days. Arizona State Elective: Licensing and Regulation for the AZ MLO Responsible Individuals See A.R.S. § 6-943 F-G Licensing of Mortgage Bankers Required; Qualifications; Application; Bond; Gees; Renewal. Refer to page 102

  19. The mortgage broker is: • A person who, for compensation, either directly or indirectly makes, negotiates a mortgage loan. • The key word that differentiates a mortgage broker from a mortgage loan originator is “indirectly.” • This means that a mortgage broker earns fees from the loan closings that come from the efforts of the loan originators that he employs. • A mortgage broker performs functions such as loan: • Underwriting • Funding • Servicing Arizona State Elective: Licensing and Regulation for the AZ MLO Mortgage Brokers See A.R.S. § 6-901.11 Definitions. Refer to page 103

  20. To be licensed, a mortgage broker must: • Have not less than three (3) years’ experience as a mortgage broker or during the five (5) years immediately preceding the application. • The current requirement is for twenty-four (24) hours of education. • Have passed a mortgage broker’s test, within one (1) year of the application. • Must demonstrate honesty, integrity, and competency. • Post a bond with the Superintendent in the amount of $10,000 for broker loans to institutional investors or $15,000 for non-institutional investors. • Pay an application fee to the department (currently $800). Arizona State Elective: Licensing and Regulation for the AZ MLO Mortgage Broker License Issuance and Renewal See A.R.S. § 6-903 Licensing of Mortgage Brokers Required; Qualifications; Application; Bond; Fees: Renewal. Refer to page 103

  21. After all of the above items are submitted to the Department, the superintendent has 120 days to issue or deny a mortgage broker license. • On or before December 31st of each year, a mortgage broker or a commercial mortgage broker must: • Pay the renewal fee for the license. • Provide certificates of twelve (12) hours of continuing education training during the year. • Provide a surety bond to the State. Arizona State Elective: Licensing and Regulation for the AZ MLO Mortgage Broker License Issuance and Renewal See A.R.S. § 6-903 Licensing of Mortgage Brokers Required; Qualifications; Application; Bond; Fees: Renewal. Refer to page 104

  22. Significant prohibited acts of a mortgage broker include: • A person is not entitled to receive compensation in connection with arranging for or negotiating a mortgage loan if such person is not licensed pursuant to this article. • A person engaged in the mortgage business shall not knowingly advertise false, misleading or deceptive statements with regard to the rates, or conditions for a loan. • A mortgage broker may not prohibit a person seeking a loan of $200,000 or less from seeking a loan elsewhere. • A mortgage broker shall not make a false promise, misrepresentation, or conceal a material fact in business. • A mortgage broker shall not engage in illegal or improper business practices. Arizona State Elective: Licensing and Regulation for the AZ MLO Prohibited Acts of a Mortgage Broker SeeA.R.S. § 6-909 Prohibited Acts. Refer to page 104

  23. A licensed mortgage banker is: • A person who for compensation directly or indirectly makes, negotiates a mortgage banking loan or a mortgage loan. • A mortgage banking loan is: • A loan which is funded exclusively from the mortgage banker’s own resources, which is directly or indirectly secured by a mortgage or deed of trust or any lien interest on real estate located in Arizona and which is created with the consent of the owner of the real property. • The funded exclusivelysection is defined as: • Funds from cash, corporate capital, or a warehouse line of credit • A warehouse line of credit for a mortgage banker is • An open end loan secured by the promissory notes that are funded from the line’s available credit. Arizona State Elective: Licensing and Regulation for the AZ MLO Mortgage Bankers See A.R.S. § 6-941.6 Definitions; A.R.S. § 6-941.5 Definitions. Refer to page 105

  24. For renewal/application of mortgage banking licenses, applicants must: • Have not fewer than three (3) years’ experience in the lending business. • Have engaged in the business of making mortgage loans. • Provide the superintendent an audited financial statement of the mortgage banking company or the parent company. • The certified public accountant’s opinion as to the fairness of the presentation in conformity with accounting principles. • A balance sheet prepared within the previous six months and certified by the licensee. • A statement of operations and retained earnings and a statement of changes in the financial position provided the applicant has commenced operations. Arizona State Elective: Licensing and Regulation for the AZ MLO Mortgage Banker License Issuance and Renewal See A.R.S. § 6-943 Licensing of Mortgage Bankers Required; Qualifications; Application; Bond; Fees; Renewal. Refer to page 105

  25. For renewal/application of mortgage banking licenses, applicants must: • Either at all times maintain a net worth of at least $100,000 or be authorized to do business with the following: • The Federal Housing Administration • The Veterans Administration • The Federal National Mortgage Association • The Federal Home Loan Mortgage Corporation Arizona State Elective: Licensing and Regulation for the AZ MLO Mortgage Banker License Issuance and Renewal (cont.) See A.R.S. § 6-943 Licensing of Mortgage Bankers Required; Qualifications; Application; Bond; Fees; Renewal. Refer to page 106

  26. Mortgage banker items that exceed the requirements of a licensed mortgage broker include: • A strong financial statement and balance sheet • A net worth of $100,000 • The continuing education requirements for the licensee include twelve continuing education units per year. • If not a natural person, a responsible individual must be employed. • A bond is required to obtain/renew a banking license. • A licensee may also provide the superintendent cash or the prescribed alternatives to cash, in lieu of a surety bond. • A person owning more than 20% of voting stock of a mortgage banking entity is also subject to licensing guidelines. Arizona State Elective: Licensing and Regulation for the AZ MLO Mortgage Banker License Issuance and Renewal (cont.) See A.R.S. § 6-943 Licensing of Mortgage Bankers Required; Qualifications; Application; Bond; Fees; Renewal Refer to page 106

  27. Arizona State Elective: Licensing and Regulation for the AZ MLO Mortgage Brokers vs. Mortgage Bankers Refer to page 107

  28. Arizona Statutes require all of the following of a responsible individual EXCEPT • be active in the management of the mortgage licensee. • be a full time Arizona resident. • have three years’ experience in the mortgage industry. • negotiate with a current lender on behalf of the borrower. Arizona State Elective: Licensing and Regulation for the AZ MLO Check Your Knowledge Refer to page 107

  29. The superintendent has ____ days to issue or deny a mortgage broker license. • 10 • 30 • 120 • 180 Arizona State Elective: Licensing and Regulation for the AZ MLO Check Your Knowledge Refer to page 107

  30. A mortgage banking loan is funded exclusively from a mortgage banker’s own resources, which include all of the following EXCEPT • cash. • corporate capital. • a warehouse line of credit. • a wholesale line of credit. Arizona State Elective: Licensing and Regulation for the AZ MLO Check Your Knowledge Refer to page 107

  31. Cease and desist orders are effective upon service to the violators and remains in effect until they are: • Stayed, • Modified, • Terminated, or • Set aside by the superintendent or a judicial action. • A person or entity that is served a cease and desist order may appeal the order within 30 days by giving notice of appeal to the Department. Arizona State Elective: Licensing and Regulation for the AZ MLO Violating Regulations See See A.R.S §41-1092.03.B Notice of Appealable Agency Action or Contested Case; Hearing; Informal Settlement Conference; Applicability .Z, 12 CFR § 1026.16 Advertising Refer to page 108

  32. The following case study is comprised of three (3) cease and desist orders issued by the Department: • The first order was issued in March of 2014 against an employee/mortgage loan originator for improper business practices and advertising violations. • The second order was issued to the mortgage banker licensee as a result of the two (2) cease & desist orders. • The third order was issued in May 2014 against employees and a mortgage loan originator for improper business practices and for providing false information. Arizona State Elective: Licensing and Regulation for the AZ MLO Case Study: Costly Improper Business Practices and Advertising Errors Refer to page 108

  33. Refer to the following Case Study on Page 109 and answer the following questions about Case Study #1. • What risks are possible if a thorough hiring process and background check is not performed for individuals who apply to work in the mortgage business? Arizona State Elective: Licensing and Regulation for the AZ MLO Case #1 Apply Your Knowledge Refer to page 109

  34. Refer to the following Case Study on Page 110 and answer the following questions about Case Study #2. • What regulation did the mortgage banker violate that was not listed in the complaint, given the actions of the employees? • What two types of violations seem to be prominent in most investigations by the Department? Arizona State Elective: Licensing and Regulation for the AZ MLO Case #2: Mortgage Banker Audit Apply Your Knowledge Refer to page 110-111

  35. Refer to the following Consent Order found on Pages 111-116 and answer the following questions about all three cases presented. • A check of the NMLS Consumer Access reveals that the MLO began in the mortgage industry in March of 2007. The MLO took the subject application in August 2012, giving him about 5.5 years of experience as a loan originator prior to this incident. After reading the Consent Order, what actions should the MLO have taken when he was first informed that his borrower was no longer employed at his firm? • What did the MLO choose to do rather than take the appropriate action? Arizona State Elective: Licensing and Regulation for the AZ MLO Case #3: Failing to Identify Potential Borrower Fraud and Improper Business Practices Apply Your Knowledge Refer to page 111-117

  36. Whose responsibility is it to ensure that a loan file is compliant and contains accurate information for the underwriter to make a prudent underwriting decision? • Do you believe, after reading all of the allegations, that the MLO colluded with the borrower to provide him financing for a home, even though he was unemployed? If not, how can the MLO’s actions be explained? Were his actions due to a lack of training and understanding of mortgage fraud or just complacency on his part? Arizona State Elective: Licensing and Regulation for the AZ MLO Case #3 Apply Your Knowledge Refer to page 117

  37. Arizona Statutes define a loan originator as any natural person, who does any of the following: • Takes a residential loan application. • Offers or negotiates the terms of a residential mortgage loan. • Negotiates with a lender to obtain a temporary or permanent modification in an existing residential mortgage loan agreement • The superintendent has 120 days to issue or deny a mortgage loan originator license. Licenses last one year. • To renew a license in Arizona, on or before December 31 of each year, MLOs must: • Pay the renewal fee for the license. • Provide certificates of eight (8) hours of continuing education training during the year. • Pay a sum to the Mortgage Recovery Fund. Arizona State Elective: Licensing and Regulation for the AZ MLO Summary Refer to page 118

  38. If a responsible individual leaves the employ of the mortgage entity, the Department must be notified within ten (10) days of the separation. The entity is required to replace the responsible individual within ninety (90) days. • A mortgage broker is defined as a person who directly or indirectly makes, negotiates, or offers to make or negotiate a mortgage loan. • A licensed mortgage banker is defined as a person who directly or indirectly makes, negotiates, or offers to make or negotiate a mortgage banking loan or a mortgage loan. • The two mortgage banker requirements that exceed the requirements of a licensed mortgage broker include: • A strong financial statement and balance sheet • A net worth of $100,000 Arizona State Elective: Licensing and Regulation for the AZ MLO Summary Refer to page 118

  39. 1. An Arizona mortgage loan originator will do all of the following EXCEPT • negotiate the terms of a residential mortgage loan. • offer the terms of a residential mortgage loan. • service the mortgage banking loan for the secondary market purchaser. • take residential loan applications. Arizona State Elective: Licensing and Regulation for the AZ MLO Chapter 4 Quiz Refer to page 119

  40. 2. If a mortgage broker does not post the required bond, a certificate of deposit or cash may be posted in its place. This alternative must remain on deposit with the State of Arizona for • six months after license revocation. • one year after the license is surrendered. • three years after the date of license expiration. • five years after the mortgage broker license expiration. Arizona State Elective: Licensing and Regulation for the AZ MLO Chapter 4 Quiz Refer to page 119

  41. 3. In Arizona, a state-issued MLO license is required if • an employer makes a mortgage loan to an employee. • the individual is a registered loan originator employed by a depository institution. • a loan processor is solely acting as a contract loan processor. • a real estate employee is performing real estate brokerage functions. Arizona State Elective: Licensing and Regulation for the AZ MLO Chapter 4 Quiz Refer to page 119

  42. 4. If an MLO license applicant has been convicted of a money laundering felony crime ten years ago, his license request will be • accepted. • denied. • revoked. • suspended. Arizona State Elective: Licensing and Regulation for the AZ MLO Chapter 4 Quiz Refer to page 119

  43. 5. When may a mortgage broker work for more than one licensee concurrently? • at no time • only after the Department issues an approval signed by the Superintendent • when he surrenders his mortgage broker license • with prior written approval of all the concurrently employing licensees Arizona State Elective: Licensing and Regulation for the AZ MLO Chapter 4 Quiz Refer to page 119

  44. 6. If an individual negotiates a mortgage loan but is not licensed pursuant to Arizona law, then • the individual is not entitled to receive compensation for the negotiation. • the individual is required to be paid an individual contractor fee. • the individual must pay a contract fee of $200 for each act as a mortgage loan originator to the Mortgage Recovery Fund. • the state will issue a $100 fine for each offense. Arizona State Elective: Licensing and Regulation for the AZ MLO Chapter 4 Quiz Refer to page 119

  45. 7. Arizona loan originator Zach wants to advertise to gain mortgage business. He will need all of the following EXCEPT • the approval of his employing mortgage banker or broker. • his unique identifier number. • the name and license number issued on the employing broker or banker’s place of business license. • the submission of all potential advertisements for the Arizona Department of Financial Institutions approval. Arizona State Elective: Licensing and Regulation for the AZ MLO Chapter 4 Quiz Refer to page 119

  46. 8. Each independent contracting processor/underwriter must have an MLO license for every state in which they process loans and a(n) • business license in the municipality where they conduct their business. • FHA processing license. • NMLS unique identifier number. • Taxpayer Identification Number. Arizona State Elective: Licensing and Regulation for the AZ MLO Chapter 4 Quiz Refer to page 119

  47. 9. In the state of Arizona, a responsible individual must have all of the following EXCEPT • active management of the business affairs of the company. • full-time residency in Arizona. • an independent contract with a licensed entity. • three years’ experience in the mortgage banking business. Arizona State Elective: Licensing and Regulation for the AZ MLO Chapter 4 Quiz Refer to page 119

  48. 10. If responsible individual leaves a licensed mortgage company, the company is required to replace the responsible individual within ___ days. • 30 • 60 • 90 • 120 Arizona State Elective: Licensing and Regulation for the AZ MLO Chapter 4 Quiz Refer to page 119

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