Mortgage Concepts: California MLO Licensing Laws
Mortgage Concepts is a recurring video series covering best practices and compliance training for California mortgage originators. This video discusses the licensing laws that MLOs must follow in California. To obtain course credits for your NMLS license renewal, visit firsttuesday.us.
Editor’s Note — The Department of Business Oversight (DBO), as mentioned in this video, is now called the Department of Financial Protection and Innovation (DFPI). We fixed this in the script provided below.
In California, two state agencies regulate MLOs:
- the California Department of Real Estate (DRE) [Calif. Business and Professions Code §10166.02(b)]; and
- the California Department of Financial Protection and Innovation (DFPI). [Calif. Financial Code §§22100(a), 50120]
Laws administered by the DRE and DFPI control the mortgage origination and lending activities of all state-licensed MLOs in California. Although all are able to issue residential mortgages, the other activities that can be carried out with each license vary.
The DRE issues two licenses under the Real Estate Act: a broker’s license and a salesperson’s license.
Brokers may sell, offer to sell, and solicit listings for the sale or lease of real estate. Sellers may engage in the same activities, but only under the employment and supervision of a broker licensed by DRE. [Bus & P C §10131]
However, to engage in MLO activities, a licensed DRE broker must:
- Obtain and maintain individual DRE MLO broker approval; and
- obtain and maintain a business or corporation MLO endorsement.
For a DRE license seller to engage in MLO activities, they must:
- obtain and maintain an MLO Seller Approval; and
- work under the employment and supervision of a licensed DRE broker who is capable of performing MLO activities.
Like the DRE regime, the DFPI issues corporate and individual MLO licenses under the CRMLA and CFL.
Under the DFPI, a person must obtain an individual MLO license and work for an MLO company licensed under one of two laws:
- the California Residential Mortgage Act (CRMLA) [Fin C §§50000 et seq.]; and
- the California Finance Act (CFL). [Fin C §§22000 et seq.]
CRMLA and CFL MLO companies can only make or negotiate residential mortgages through licensed individual MLOs. [Fin C §§22100(d), 50002.5(c)]
Why choose to work under one law rather than another?
CRMLA companies are able to service loans for third parties. They are also able to negotiate mortgages, but only with other CRMLA lenders and federally and state-chartered institutions.
Additionally, a California business address is not required to obtain a CRMLA business license. [Fin C §§50000 et seq.]
Under the CFL, MLOs may originate, negotiate or service residential mortgages, but only to/for other CFL lenders. [Fin C §22004]
In addition, a CFL company that provides a loan must lend its own funds. He cannot fund a mortgage with a warehouse line of credit. [10 CCR §1460]
However, CFL companies and their employees can provide secured and unsecured consumer and commercial loans.
The DRE and DFPI schemes overlap a bit. An active DRE-licensed MLO can originate mortgages and work under the umbrella of a CRMLA or CFL broker without obtaining an individual MLO license under the DFPI. [Fin C §§22057, 50002(c)(9)]
However, the reverse is not true. A DFPI licensed MLO cannot originate mortgages under a DRE licensed MLO broker without an active DRE license and MLO approval.
Let’s look at a few scenarios to see if we can determine what type of license is required.
Pablo wants to work for their relative, who is a licensed CFL broker. He is also interested in the sale of real estate. What license does Pablo need?
To accomplish his two goals, Pablo can get a DRE Seller License and MLO Approval, and find a DRE Licensed Broker with an MLO Approval to work with. As long as he remains an active seller, he can work under his CFL licensed parent without also getting an individual MLO license.
Alternatively, he can obtain both a DFPI-controlled individual MLO license to work with his CFL-licensed parent, and a separate DRE seller license and find a DRE broker to work under to sell real estate.
Kayla holds an individual MLO license and works for a CFL licensed company that offers residential mortgages. Later, her business closes and she goes looking for a new job.
She receives an offer from a CRMLA company to create residential mortgages and an offer from a DRE licensed real estate broker to start a residential mortgage business. What offer can Kayla accept without getting a new license?
Since Kayla already holds an MLO license under the DFPI, she can accept CRMLA’s offer without obtaining another license. In contrast, the DRE Licensed Broker’s offer would require the DRE Broker and itself to obtain the necessary licenses and endorsements.
Tom is a sole proprietor and holds a CFL license to make personal loans. His business is thriving and he wants to diversify into residential mortgage brokerage. Since he already holds a CFL license, does he need to get another license to start his residential mortgage brokerage business?
Yes! He must obtain both a corporate CFL MLO license and, if he wishes to continue to operate as a sole proprietor, he must also obtain an individual MLO license.