The US House of Representatives have passed a bill that may signal big changes for how loan originators do business. Moving to the Senate this coming legislative session, the SAFE Transitional Licensing Act allows mortgage loan officers to keep originating new loans after they move from a banking entity to a nonbanking one. The switch currently puts a halt to the loan officer’s business until their new license comes through: under the new act, they would be able to continue practicing unlicensed for a period up to 120 days, allowing for a seamless transition.

Issue Background

Entity transitions for loan officers are currently governed by the SAFE Mortgage Licensing Act, which decrees that an officer who moves states or chooses to take their business to a non-federally-insured (i.e. nonbank) lending entity must “sit on their hands” and halt business until all licensure is approved and ready. This can lead to cash flow problems for individual lenders, as well as a frustrating experience for any customers who are currently relying on that officer to help complete their mortgage transaction.

Potential Impact

The Transitional Licensing Act has garnered strong support from the Mortgage Bankers Association, which calls the move an “important piece of bipartisan legislation” that will greatly reduce barriers for employment and mobility among loan officers. They argue that the act’s increased flexibility will directly contribute to a competitive, active mortgage marketplace. This stimulus is more important now than ever, as the once-struggling real estate landscape slowly but surely recovers from the 2008 financial crisis.

What Lenders Need to Know

The most important aspect of the policy shift for lenders will be an increased access to human capital in the form of experienced, knowledgeable loan officers who up until now may have been hesitant to change paths due to the headache of obtaining new licensure. This in turn translates to customers having more freedom when it comes to their loan origination entity: greater competition leads to a more robust set of options to choose between. Additionally, non-bank loan entities — which are subject to more restrictive qualifications for their employees than traditional banks — may now offer a more in-depth suite of services thanks to the influx of fresh blood in their workforce.

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