Mortgage brokers, real estate agents, loan originators and banks all play a part in the purchase of a home, yet loan originators up until now were the only ones not required to be licensed in Arizona.

However, one provision of the housing bill President Bush signed last week requires the licensing of mortgage loan originators, who interview consumers in connection with applications for mortgage loans and act as liaisons with lenders.

Loan originators usually work for mortgage brokers and currently fall under the mortgage broker’s license for disciplinary purposes. Prior to the passage of this legislation, there were no required educational requirements, background checks or any other requirements to become a loan originator in Arizona.

“You could of been trusting the largest financial decision of your life to a convicted felon and not even know it,” said Arizona legislature Jay Tibshraeny, R-Chandler.

Tibshraeny has been trying for several years to get a bill through the Arizona state legislature that would put licensing requirements on loan originators.

Prior to the signing of this bill, 26 states already had licensing requirements in place for loan originators.

In Arizona there are currently about 10,000 loan originators, said Jack Hudock, public information officer for the Arizona Department of Financial Institutions.

Hudock said the department got the number by estimating two to three employees for the 4,000 mortgage brokerage locations in the state, but “when other states implemented licensing laws, they have found out that they drastically underestimated the amount of loan originators.”

“These states have seen the number of loan originators shrink after passing legislation,” Hudock said.

After Ohio implemented a licensing requirement, almost 10 percent of its loan officers were not allowed to write loans because they had been convicted of felony crimes or misdemeanors involving financial misconduct, said Jody Davis, government affairs director for the Arizona Association of Mortgage Brokers.

In addition, because of the prior lack of licensing requirements in Arizona, loan originators who had been denied licensing in other states came here to do business, added Davis.

To obtain a license under this new law, all loan originators will be required to provide credit reports, fingerprints, information on criminal or civil rulings against them and any personal history or experience.

If the person applying for a license has pleaded guilty to a felony count in the last seven years or had their license revoked in another state, then their application for a license would be denied.

“These loan originators handle sensitive information, and it needs to be protected,” Tibshraeny said.

This new law also contains an education component. Potential loan originators most complete 20 hours of education, which includes courses on ethics, fraud, consumer protection, fair lending, federal law and non-traditional mortgages.

In order to get their license, the prospective loan originator must pass each test with a score of 75 percent or better. Failed sections can be retaken up to three times, but an applicant must wait 30 days between these retakes.

Once an originator has their license approved, they must take a minimum of eight hours of continuing education each year in order to maintain their license.

“Borrowers tend to think loan originators know what they are talking about; this new law will help ensure that they do know what they are talking about,” said Felecia Rotellini, superintendent of the Arizona Department of Financial Institutions.

Currently there are several organizations that offer certification and educational courses for loan originators; however, with the passage of this bill, they could see a substantial jump in business.

The Department of Housing and Urban Development will enforce the new rules and has the authority to revoke a license or impose a fine of up to $25,000 for each offense or omission that breaks the rules.


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