Monday, August 23, 2010

Florida Reverses Requirement to License Mortgage Loan Underwriters

Licensing Obligations for Individuals Acting as In-House Underwriters

The Office of Financial Regulation (OFR) has changed its licensing requirements: earlier this year the OFR passed a mandate that mortgage processors and underwriters must become licensed as loan originators. This requirement has been reversed, because "underwriters did not clearly fit [the] description" of a "loan originator."


On August 17, 2010, the OFR provided a legal opinion (Opinion), issued by Jenny S. Kim, the OFR's Assistant General Counsel, which gave the following clarification to substantially the following question:

Whether individuals employed by Florida-licensed mortgage lenders who exclusively conduct underwriting activities for their employer will be required to be licensed as "mortgage loan originators" on October 1, 2010?

According to the Opinion, effective October 1, 2010, the definition of "loan originator" means:

[A]n individual who, directly or indirectly, solicits or offers to solicit a mortgage loan, accepts or offers to accept an application for a mortgage loan, negotiates or offers to negotiate the terms or conditions of a new or existing mortgage loan on behalf of a borrower or lender, processes a mortgage loan application, or negotiates or offers to negotiate the sale of an existing mortgage loan to a non-institutional investor for compensation or gain. The term includes the activities of a loan originator as that term is defined in the S.A.F.E. Mortgage Licensing Act of 2008, and an individual acting as a loan originator pursuant to that definition is acting as a loan originator for purposes of this definition. The term does not include an employee of a mortgage broker or mortgage lender who performs only administrative or clerical tasks, including quoting available interest rates, physically handling a completed application form, or transmitting a completed form to a lender on behalf of a prospective borrower. [Section 494.001(14), Fla. Stat. - Emphasis Added]

The Opinion indicates that the Florida definition of "loan originator," does not explicitly include underwriting. Section 1503(4) of the S.A.F.E. Act, however, provides that an underwriter "means an individual who performs clerical or support duties at the direction of and subject to the supervision and instruction of (i) a State-licensed loan originator; or (ii) a registered loan originator." Section 1504(b) of the S.A.F.E. Act further states that "supervised" underwriters (who do not represent to the public that they perform loan origination activities) are not required to obtain loan originator licenses, while independent contractors "may not engage in residential mortgage loan origination activities as a[n]...underwriter unless such independent contractor is a State-licensed loan originator."

Opinion's Interpretative Conclusions

  • Underwriters who are W-2 employees of licensed mortgage lenders are not required to obtain loan originator licenses with the OFR.
  • If underwriters intend to underwrite exclusively for one employer, they would not be subject to HB 1281's requirement that "loan processors" file declarations of intent to engage solely in loan processing in order to contract with multiple mortgage brokers or mortgage lenders.

Finally the Opinion states that in-house underwriters who work for a licensed lender must be supervised by a licensed loan originator in order to comply with the S.A.F.E. Act and Chapter 494, Florida Statutes.

Our Advice & Summary

Effective October 1, 2010

  • The licensing requirement can be properly effectuated in compliance with both the S.A.F.E. Act and Chapter 494, Florida Statutes by assuring that the originating entity's underwriting manager is licensed, though the underwriters subordinate to the underwriting manager do not need to be licensed.
  • Florida-licensed loan originators who solely act as a loan processor will be permitted to contract with one or more mortgage brokers and/or mortgage lenders, simultaneously. This correction will permit licensed loan originators who work for companies that exclusively perform processing services to process mortgage loans for more than one entity.
  • The term "loan processor" will be defined as an individual who is licensed as a loan originator and who only engages in:

1. "the receipt, collection, distribution, and analysis of information common for the processing or underwriting of a residential mortgage loan"; or

2. "communication with consumers to obtain the information necessary for the processing or underwriting of a loan, to the extent that such communication does not include offering or negotiating loan rates or terms or does not include counseling consumers about residential mortgage loan rates or terms."

  • In order to act as a "loan processor," an individual licensed as a loan originator will provide the OFR with a declaration of intent to engage solely in loan processing activities. The OFR will provide a new form so individuals can declare their intent to engage exclusively in loan processing activities.

For questions about this matter
or assistance with mortgage compliance,
please contact Jonathan Foxx, Managing Director.

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Licensing Obligations for Individuals
Acting as In-House Underwriters

Florida - Office of Finance Regulation
August 17, 2010

Lenders Compliance Group is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.