How to Get Licensed as a Residential Mortgage Loan Originator

Part-Two of a Three-Part Series on Getting Started in the Residential Mortgage Loan Origination Business

by | Jan 21, 2022 | Pass the NMLS Exam | 2 comments

Through last week’s article I described the available options for kickstarting one’s career as a residential mortgage loan originator.  For those who decide to travel the pathway of originating mortgage loans for non-depository lenders or mortgage brokers, the next step would be to secure the necessary license(s) to practice their trade.

Some sponsors (employers) will assume the costs associated with licensing their new hires and guide them through the licensing process accordingly.  But let’s assume that you have decided to pursue licensure on your own and intend to find your new sponsor later.  Mortgage loan originators who are required to be licensed must secure and maintain a license from each state in which the properties are located on which they originate residential mortgage loans.  After creating your free NMLS account (as discussed in last week’s article), the next step would be to enroll in the appropriate pre-licensing education.  

In order to secure one’s MLO license, the licensing candidate must complete an NMLS-approved 20-hour pre-licensing (PE) course.  The course can be offered by any NMLS-approved education provider (a list of which can be found through https://nmlsportal.csbs.org/csm?id=kb_article_view&sys_kb_id=901354f0db3d37008410388d7c9619f7) and may be taken through:

  • Live classroom; 
  • Webinar; or
  • Online

formats.

Although the live classroom format is the modality most conducive to learning, comprehension, and retention, finding a live classroom 20-hour course will prove challenging.  The limited overall demand for live classes makes it cost-prohibitive for education providers to offer the 20-hour course live.  The most common modality is the online, self-paced method.  Now be warned!  There are high-quality and poor-quality NMLS-approved education providers offering high-quality and poor-quality courses.  As such, the licensing candidate should always perform his or her due diligence in choosing a 20-hour course provider and course.

Having taught 20-hour pre-licensing education for over 13 years, I can honestly, and without any reservation, recommend OnlineEd as offering some of the highest quality, 20-hour pre-licensing and state-specific education available.  OnlineEd’s courses are inexpensive, are regularly updated as the industry evolves, provide many additional study resources including live, instructor-led review sessions, and provide each student with a textbook, in PDF format, from which they can study and prepare for the exam after their course is over.  Most course providers leave it to the test candidate to find their own study resources after completing their course.  

Once the licensing candidate successfully completes his or her 20-hour course, he or she will need to determine if the state(s) in which he or she ultimately intends to seek licensure require state-specific pre-licensing education.  Not all states do but, if the licensing candidate desires to secure a license from a state that requires it, he or she will have to take and complete that additional education in order to do so.  A list of states that require state-specific PE hours may be found through https://nmlsportal.csbs.org/csm?id=kb_article_view&sysparm_article=KB0016766&sys_kb_id=8d5b44f61b2074903198dc6ce54bcb14.  You may access OnlineEd’s national and state-specific PE course offerings through https://www.onlineed.com/catalog/mortgage/r1533.

After completing the 20-hour course and any required state-specific PE, the licensing candidate must now prepare for, take, and pass the NMLS National MLO Licensing Examination.  The NMLS exam is a 120-question, multiple choice exam assessing the licensing candidate’s mortgage origination knowledge over five content areas:

  1. Federal Mortgage Related Laws;
  2. General Mortgage Knowledge;
  3. Mortgage Loan Origination Activities;
  4. Ethics; and
  5. The Uniform State Content (USC)

There are no state-specific questions on this exam nor are there any state-specific tests that a candidate for MLO licensure must take and pass in addition to the national NMLS exam.

To pass the NMLS exam, the test taker must score a grade of no less than 75% in the slightly more than three hours afforded to them to complete it.  It’s extremely important to note that no 20-hour course, in and of itself, can adequately prepare someone for this exam.  To pass, the exam candidate must devote considerable time to effectively studying and preparing for it beyond his or her 20-hour course.  I have discussed the exam and the process for preparing for it in a previous article.  

NMLS exam candidates are encouraged to attend the NMLS exam prep webinar, “Maximizing Your Success” as an important part of their preparatory regimen.  “Maximizing Your Success” provides each participant with proven test-preparation tips and strategies, study tips and strategies, and test-taking tips and strategies, all formulated to enhance the likelihood that the NMLS exam candidate ultimately becomes part of the exam’s overall 52% pass rate instead of its overall 48% failure rate.  Seats for this online seminar may be secured through https://www.onlineed.com/mlotestprep.  

Once the licensing candidate has completed all of his or her required pre-licensing education and has passed the NMLS exam, he or she may now apply for his or her license.  To do so, the licensing candidate must submit form MU4 through the NMLS’ website.  In doing so, the licensing candidate must authorize the procurement of a criminal background check, a credit report, and pay all required licensing fees.  You may access the NMLS’ step-by-step instructions through https://mortgage.nationwidelicensingsystem.org/slr/resources/Pages/GettingStartedStateMLO.aspx

It is noteworthy to mention, however, that licensing candidates who have:

  • Previously had a license revoked in another jurisdiction, the revocation of which was not vacated;
  • Been convicted of a felony within the previous seven years or at any time if the felony involved an act of fraud, dishonesty, breach of trust, or money laundering;
  • Current or outstanding judgements (aside from judgements solely resulting from medical expenses);
  • Current or outstanding tax liens or other government liens and/or filings;
  • Foreclosures within the previous three years; and/or
  • A pattern of seriously-delinquent accounts within the previous three years

are ineligible for licensure.

Don’t worry!  Anyone whose credit is problematic is not automatically disqualified from licensure.  A licensing candidate with spotty credit should prepare a credit explanation letter explaining what happened, what they did to fix the issue, and what they are and will be doing to prevent the issue from occurring again to submit with their application package.  State commissioners will review these credit explanation letters and render their decisions on a case-by-case basis.

If a licensing candidate’s application is approved prior to the applicant securing sponsorship with a licensed mortgage lender or broker, his or her license will be issued in an “approved-inactive” status.  As such, he or she may not act in the capacity of a licensed mortgage loan originator.  Once the mortgage originator secures sponsorship with a licensed lender or broker, he or she may petition the NMLS to change his or her license’s status from “approved-inactive” to “approved-active.”  Once switched, the mortgage loan originator is free to perform any and all duties of and exercise any and all privileges afforded to a licensed mortgage loan originator.

Next week: Part Three – Hitting the Ground Running.

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