By David Sands and Sherwin Root

The California Department of Corporations recently added a question to its on-line frequently asked questions on mortgage loan originators which made clear that wholesale lender account executives who do not deal with the public (but only with correspondent lenders) do not need to be licensed as mortgage loan originators with the NMLS. Here is the text of the entire question and answer:

Are account executives employed by wholesale lenders required to obtain an MLO License?

Whether an individual is considered to be an MLO is not based on the title or position of the person, but rather whether the activity of the person fits within the definition of MLO. The definition of an MLO can be found in Section 22013(a) of the CFLL and Section 50003.5 of the CRMLA, which states in a pertinent part: "Mortgage loan originator" means an individual who, for compensation or gain, or in the expectation of compensation or gain, takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan…"

Subsection (b)(7)(ii) of Appendix A of HUD’s final rule provides that offering or negotiating terms of a loan does not include offering or negotiating loan terms solely through a third-party licensed loan originator, so long as the nonlicensed individual does not represent to the public that he or she can or will perform covered activities and does not communicate with the borrower or potential borrower. For example, an individual who works solely for a lender, when the individual offers loan terms exclusively to third-party licensed loan originators and not to borrowers or potential borrowers. (Federal Register Vol. 76, No. 126, June 30, 2023)

Therefore, any account executive or person who works solely for a lender that offers or negotiates loan terms solely through third-party licensed mortgage loan originators and not to borrowers or potential borrowers is not required to be licensed as a mortgage loan originator.

This reverses the position previously taken by the Department of Corporations. It is important to note that in order to be eligible for this exemption, the account executive can neither represent to the public that he or she performs activities that would require a license, or communicate with borrowers or potential borrowers in any respect.

If you have any questions about the foregoing, please contact David Sands at 213.617.5536 or Sherwin Root at 213.617.5465.