MLO Mentor: California Residential Mortgage Law

MLO Mentor is an ongoing series covering compliance best practices for Mortgage Loan Originators (MLOs). This article will review licensing, origination, and MLO reporting under the California Residential Mortgage Act (CRMLA). Register for the first tuesday 8 hour CE NMLS to renew your California MLO license and learn more about how the CRMLA affects your practice.

the CRMLA was enacted in 1994 to license mortgage bankers whose primary business is to originate and service residential mortgage loans. A CRMLA Licensee may act as a Lender and/or Service Agent. [Fin C §§50000 et seq.]

The CRMLA is an alternative to:

  • Department of Financial Protection and Innovation (DFPI) license under the California Finance Law (CFL); and
  • Real Estate Department (DRE) licensed under the Real Estate Act.

Both the CFL and DRE programs allow licensees to originate and originate residential mortgages. However, origination of residential mortgages is only one of the many activities that a CFL or DRE licensee may engage in.

In contrast, the CRMLA regime is specifically designed to authorize and regulate mortgage banking activitiesas:

  • make federally-linked mortgages;
  • providing residential mortgage loans to finance the construction of a house;
  • buying and selling a residential mortgage to institutional investors;
  • residential mortgage servicing;
  • residential mortgage brokerage; and
  • providing contract underwriting services for lenders.

MLOs may obtain approval to issue residential mortgages under one or more of these programs. MLO activities and employment will determine which license to seek.

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Who must be licensed and exemptions

Anyone originating or servicing residential mortgages in California must have a CRMLA license. [Fin C §50002(a)]

Individuals and entities exempt from CRMLA licensing include:

  • DRE-licensed real estate brokers who hold DRE MLO endorsements and their DRE-licensed employees who hold DRE MLO endorsements;
  • individuals and businesses licensed under the CFL;
  • federally registered MLOs employed by federally regulated depository institutions or subsidiaries of federally regulated depository institutions;
  • federally chartered banks, savings and loan associations, and credit unions;
  • banks, savings and loan associations, and credit unions with out-of-state charters;
  • lenders who only make commercial, commercial or agricultural mortgage loans; and
  • federal, state or local government agencies. [Fin C §50002(c)]

A residential mortgage is a mortgage:

  • secured by a residential property with one to four dwellings; AND
  • made by a federally regulated lender;
  • made under a federal mortgage program; or
  • sold to Fannie Mae or Freddie Mac. [Fin C §50003(p)]

A two-tier licensing structure

An individual or business must register with the National Mortgage Licensing System and Registry (NMLS) and maintain a unique NMLS ID before qualifying to originate or service a residential mortgage loan under the CRMLA. [Fin C §50002.5(d)]

Under the CRMLA program, the NMLS recognizes two types of licenses:

  • the individual MLO license; and
  • the CRMLA license.

An individual MLO is an individual who, for remuneration or gain:

  • takes a residential mortgage application;
  • proposes the terms of the residential mortgage loan; or
  • negotiates the terms of a residential mortgage loan. [Fin C §50003.5(a)]

An MLO is a facilitator – they communicate directly with the borrower and help them find a suitable mortgage product.

In contrast, a CRMLA licensee is an individual or business that originates (lends) or administers a residential mortgage loan. [Fin C §50002(a)]

Ready is the decision-making process of approving the residential mortgage application and providing funds for the mortgage. [Fin C §50003(m)]

Maintenance is the process of collecting mortgage payments from the borrower, applying payments to the balance owing on the mortgage, maintaining mortgage records, and other administrative tasks related to the mortgage.

A CRMLA manager can manage residential mortgages they own and residential mortgages held by others. [Fin C §50003(x)]

However, CRMLA licensees can only originate or negotiate residential mortgages through an individual MLO. [Fin C §50002.5(c)]

Individual MLOs, exemptions

Engage individually MLO activitiesa person must obtain:

  • an individual MLO license under the DFPI [Fin C §50002.5(c)];
  • an active DRE broker license and MLO endorsement; or
  • an active DRE Vendor License and MLO Approval. [Fin C §50003.5(b)(4)]

Clerical workers, underwriters and contractors employed by CRMLA licensees are not considered MLOs and are exempt from MLO licensing. [Fin C §50003.5(b)(1)]

However, a Contract the underwriter or contractor must hold both a CRMLA license and an individual MLO license to provide underwriting or processing services. [Fin C §50003.6(c)]

A CRMLA license holder is responsible for verifying the MLO license status of each individual MLO they hire or pay. [Fin C §50002.5(a)-(b)]

Apply to be an Individual MLO

In order for a person to obtain an MLO license and provide mortgage origination services on behalf of a CRMLA licensee, they must first apply for an individual NMLS account by completing the Individual Account Application Form on the NMLS website.

The individual MLO candidate will receive an NMLS ID, NMLS User ID and password. They then log on to the NMLS system to file their MLO license application using the NMLS MU-4 online filing.

Deposit of the MU-4

The MU-4 filing will require the MLO applicant:

  • completed 20 hours pre-licensing training, including 2 hours mortgage law specific to the DFPI [Fin C §50142(a)];
  • pass an exam administered by the NMLS on federal and state mortgage laws [Fin C §50143];
  • submit a declaration of citizenship to the DFPI [Fin C §50000 et seq.];
  • authorize the submission of fingerprints for a background check; and
  • pay a fee to the DFPI through the NMLS.

Editor’s note – the first tuesday The 20-hour pre-licensing MLO course offering is approved by the DFPI to meet this training requirement. Learn more about

In addition, individual MLOs must show that they have:

  • has never had an MLO license revoked by a regulatory body;
  • has never been convicted of or pleaded guilty to or contested a crime involving fraud, dishonesty, breach of trust or money laundering in the seven years preceding the application;
  • demonstrated financial responsibility, character and general ability to operate as an honest and fair MLO; and
  • obtained employment with a CRMLA licensee. [Fin C §50141]

The fees for obtaining a CRMLA license are $330 for an individual MLO license, plus a $15 a credit application fee and a $36.25 background check fees, all paid for by the NMLS.

Next week we will discuss CRMLA licensing for businesses and the procedures involved.

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