TrainingPro Colorado Ax5 Test Preparation: Colorado License Law and Regulation 2014 - Advanced Education Systems, LLC DBA TrainingPro ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher and the copyright holder. This publication is designed to present, as simply and accurately as possible, general information on the subject. It should be noted that the information presented is not all-inclusive. Products, programs and guidelines change due to rapid changes in the industry. This publication should not be used as a substitute for referring to appropriate experts and is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other personalized professional service. If legal or other expert assistance is required, the services of a competent professional should be sought.
Colorado State Component Colorado License Law and Regulation (25%) Colorado offers a mortgage loan originator license, which is required for any person who originates a mortgage, acts as a mortgage loan originator, or offers to do either in the state of Colorado. A mortgage company registration is also available and required for any company or sole proprietorship that, through employees or other individuals, takes residential mortgage loan applications or offers or negotiates the terms of residential mortgage loans. The following section will review provisions related to licensing, including requirements for licensure, exemptions, grounds for license denial, and standards for license maintenance. Persons Required to Be Licensed Anyone who originates a mortgage, offers to originate a mortgage, acts as a mortgage originator, or offers to act as a mortgage loan originator must first obtain a license. Thus, any individual who intends to do business as a mortgage loan originator in Colorado must obtain a license from the Board and be registered through the NMLS (C.R.S. 12-61-903). Colorado does not offer licenses for branch offices at this time. 1 Mortgage companies intending to operate in the state of Colorado must register through the NMLS unless exempted under a ruling by the Board. Much like mortgage loan originator licenses, registration must be renewed each calendar year. In order to renew, both of the following must be true: The company must be legally operating in Colorado according to standards established by the Secretary of State The mortgage company has not been legally barred from operating in Colorado Sole proprietorships, general partnerships, and other mortgage companies not otherwise required to register with the Secretary of State must do so using a trade name (C.R.S. 12-61-903.1). Exemptions The following individuals are exempt from state licensing requirements: Persons providing financing for the sale of property that the person owns, no more than three times in any 12-month period Banks or similar institutions subject to federal banking agency regulation Licensed Colorado attorneys rendering services in the course of practice who are not primarily engaged in the business of negotiating residential mortgage loans 1 http://mortgage.nationwidelicensingsystem.org/slr/pages/dynamiclicenses.aspx?stateid=co Colorado State Component v2.1 1
Persons who fund a residential mortgage loan that has been originated and processed by a licensed or exempt person Loan processors or underwriters who do not represent to the public through advertising or other means that they perform mortgage loan originator activities Persons who do not solicit Colorado borrowers for the purpose of making residential mortgage loans Persons participating in the negotiation of a residential mortgage loan solely for setting the terms under which a person may buy or fund a loan originated by a licensed or exempt person Quasi-government agencies, HUD-approved counseling agencies, community development organizations, self-help housing organizations, or employees or volunteers thereof (C.R.S. 12-61-904) Licensee Qualifications and Application Process Mortgage Companies In order for a mortgage company to operate in the state of Colorado, the company must register through the NMLS. To successfully complete registration, mortgage companies must adhere to all policies put in place by state law and the NMLS and pay the required application fee and NMLS processing fee. Mortgage companies must meet all requirements of the law under C.R.S. 12-61-903.1 (see above), and: Be in good standing with the Colorado Secretary of State Not be otherwise legally barred from operating in the state of Colorado 2 Individuals The licensing application process begins by registering on the NMLS website and obtaining a unique identifier. Once the unique identifier is obtained, the applicant must file the application form through the NMLS and pay required fees. Additional fees may apply, including those for NMLS processing, credit reporting, fingerprints, and a criminal background check. The NMLS then forwards the form to the Colorado Division of Real Estate for review. The NMLS application form for a mortgage loan originator is called the MU4 form. The sevenpage document requires that applicants disclose their residential and employment history, financial, criminal, civil judicial, regulatory, and arbitration history, and whether they have ever been fired or resigned for committing fraud or other acts of dishonesty. The NMLS also imposes the following requirements on every applicant: Certification that 20 hours of pre-licensing education courses have been completed Passing scores on the national and Colorado-specific parts of the license examination 2 http://cdn.colorado.gov/cs/satellite/dora-dre/cbon/dora/1251628373883 Colorado State Component v2.1 2
Authorization for a credit check Fingerprints submitted to the FBI for a criminal background check Colorado-Specific Requirements for Licensure In addition to the requirements set forth under federal law, states are allowed to impose further requirements for license applicants. An applicant for licensure as a mortgage loan originator in Colorado must successfully meet all of the following requirements: Submit fingerprints for a criminal history record check to the Colorado Bureau of Investigations within one year immediately preceding the date of application Register with the NMLS and meet any corresponding requirements, including authorizing the NMLS to obtain a credit report and the payment of any fees Submit fingerprints to the NMLS as required Complete 20 hours of pre-licensing education (see below) Successfully take and pass the SAFE Mortgage Loan Originator examination (see below) Acquire a surety bond and errors and omissions insurance as required (see below) Complete a Mortgage Loan Originator Application and pay the corresponding nonrefundable application fee (4 CCR 725-3 Rule 2.1) Once an application has been received, including all of the information required by law, the application fee, and proof of a surety bond and errors and omissions insurance, the Board will issue or deny a license within 60 days (C.R.S. 12-61-903). Financial Responsibility Applicants must post a surety bond in order to meet the licensing requirements in Colorado. A surety bond is a promise by one party to fulfill the obligations of a second party if the second party fails to fulfill its promises. To obtain a surety bond, the applicant must contact an agent of a surety bond company or an independent insurance agent experienced in surety bonds. The applicant must then pay a fee for the surety bond, in an amount determined based on the bond company s evaluation of the applicant s creditworthiness, the dollar amount of the bond, and the conditions imposed on it for paying claims. As part of the surety bond arrangement, the applicant will be required to indemnify the surety bond company, meaning that the applicant will have to promise to reimburse the company for any money the bond issuer pays on any surety bond claim. Colorado requires that all surety bonds are exclusive to covering acts under the originator licensing laws, are limited to acts within the Director s jurisdiction, and are identical to the bond form developed by the Director (C.R.S. 12-61-907). Colorado State Component v2.1 3
Required bond amounts are as follows: Mortgage loan originators must post a $25,000 surety bond Mortgage loan originators who are employees or exclusive agents for companies with fewer than 20 individuals are allowed to operate under the company s surety bond if it is in the amount of $100,000 Mortgage loan originators who are exclusive agents or W-2 employees for companies with 20 or more individuals are allowed to operate under the company s surety bond if it is in the amount of $200,000 (4 CCR 725-3 Rule 2.19) Errors and Omissions Insurance In addition to surety bond coverage, licensees are also required to maintain errors and omissions insurance to cover their activities as mortgage loan originators. Errors and omission insurance, often referred to as E&O insurance or malpractice insurance, is business liability insurance for professionals. It pays the party wronged by the license holder s mistake made in the course of providing professional services, and it pays, or helps to pay, for the license holder s legal costs should he or she be sued. The requirement to carry E&O coverage does not apply to those with an inactive license or to attorneys licensed as mortgage loan originators who maintain an E&O policy through their law practice (C.R.S. 12-61-903.5). Colorado requires that all E&O policies meet the following minimum requirements: Mortgage loan originators can maintain an individual policy in their own name that covers all acts for which an originator license is required, with coverage for not less than: o $100,000 for each licensed individual per covered claim o An annual aggregate limit of not less than $300,000 per licensed individual o A deductible no greater than $1,000, or $20,000 for policies primarily insuring reverse mortgage transactions Mortgage loan originators who are exclusive agents or employees for companies with fewer than 20 individuals are allowed operate under the company s E&O policy provided that the policy covers all acts for which an originator license is required, with coverage for not less than: o $1,000,000 for each licensed individual per covered claim o An annual aggregate limit of not less than $2,000,000 per licensed individual o A deductible no greater than $50,000 Mortgage loan originators who are exclusive agents or employees for companies with 20 or more individuals are allowed operate under the company s E&O policy provided that the policy covers all acts for which an originator license is required, with coverage for not less than: o $1,000,000 for each licensed individual per covered claim Colorado State Component v2.1 4
o An annual aggregate limit of not less than $4,000,000 per licensed individual o A deductible no greater than $100,000 (4 CCR 725-3 Rule 2.23) Companies must provide to the Board any and all requested E&O insurance policies, and must verify and provide adequate proof regarding the timeline of employment for each individual operating under the company policy. Failure to do so will be considered non-compliance on the part of individual licensees operating under the policy (4 CCR 725-3 Rule 2.24). Mortgage loan originators will be required to provide proof of continuous errors and omissions insurance coverage, and that the information is current. Updates must be made electronically on the website of the Division of Real Estate (4 CCR 725-3 Rule 2.25). Any licensee who fails to obtain and maintain an E&O insurance policy in accordance with the law, or who fails to provide proof of continuous coverage as required, will be subject to disciplinary action (4 CCR 725-3 Rule 2.26). Financial Responsibility under the Uniform Consumer Credit Code The Director of the Division of Real Estate issued MB 1.7 to address confusion regarding what does and does not constitute proof of financial responsibility and to clarify the term. The position statement says that a presumption of compliance exists regarding the financial responsibility requirement for any individual who has complied with the errors and omissions insurance requirement and the surety bond requirement. Thus, a license holder who meets the errors and omission insurance and surety bond requirements is presumed to have satisfied the financial responsibility requirement. 3 Pre-Licensing Education and Experience Mortgage loan originator license applicants are required to complete at least 20 hours of prelicensing education in order to be approved for licensure. Of this requirement, federal law specifies that courses must include the following: Three hours of federal law and regulations Three hours of ethics Two hours of training related to lending standards for nontraditional mortgage loans 12 hours of undefined instruction on mortgage origination Testing and Retesting Prior to becoming licensed, loan originator license applicants must pass an examination that tests applicants knowledge of ethics, federal and state mortgage lending laws and regulations, and federal and state laws on fraud, consumer protection, nontraditional mortgages, and fair lending. Applicants must pass the test by answering at least 75% of the questions correctly. 3 http://cdn.colorado.gov/cs/satellite?blobcol=urldata&blobheadername1=content- Disposition&blobheadername2=Content- Type&blobheadervalue1=inline%3B+filename%3D%22Financial+Responsibility+PS+1.7.pdf%22&blobheadervalu e2=application%2fpdf&blobkey=id&blobtable=mungoblobs&blobwhere=1251818322286&ssbinary=true Colorado State Component v2.1 5
A loan originator who fails his/her initial attempt is permitted two additional test attempts. He/she must wait 30 days between each test attempt. If, on the third test attempt, the loan originator does not pass, he/she must wait six months (180 days) prior to attempting the test again. Those who fail to maintain a valid license for a period of more than five years after license expiration are required to take the examination again prior to re-application (4 CCR 725-3 Rule 4.3). Temporary Licenses Colorado provides temporary licenses to those who wish to operate as a mortgage loan originator on a temporary basis. The Director can issue temporary licenses to mortgage loan originators who have demonstrated a good faith effort to comply with the requirements of the Mortgage Loan Originator Licensing Act and meet the following criteria: The individual has completed all requirements set forth by the NMLS, including payment of fees, and has been approved by the Board of Mortgage Loan Originators Submission of a set of fingerprints to the Colorado Bureau of Investigation prior to submitting an application Completion of the mortgage loan originator application Payment of the application fee Acquisition of the surety bond Acquisition of the errors and omissions policy (4 CCR 725-3 Rule 2.4) In addition, licensed mortgage loan originators may hire and sponsor unlicensed mortgage loan originators under Colorado s temporary licensing provision. The licensed mortgage loan originators must notify the Division of Real Estate of the dates of hire and must agree to be responsible for the unlicensed party s actions. Temporary licenses expire 120 days after completion of the originator license application. They cannot be extended or renewed (4 CCR 725-3 Rule 2.6). Grounds for Denying a License The Board may deny, revoke, or refuse to renew the license of an individual who has done any of the following: Included any material misstatements of fact or omitted required disclosures in an application filed with the Board Within the last five years, been convicted of or pled guilty or nolo contendere to a crime involving fraud, deceit, material misrepresentation, theft, or breach of fiduciary duty Colorado State Component v2.1 6
Within the last five years, had a license or registration issued by Colorado or another state revoked or suspended for fraud, deceit, material misrepresentation, theft, or breach of fiduciary duty, and such action prohibited the person to do business as: o Mortgage broker or mortgage loan originator o Real estate broker, salesperson, or appraiser o Insurance producer o Attorney o Securities broker-dealer o Securities sales representative o Investment advisor or representative Within the last five years, have engaged in deceptive conduct relating to the mortgage profession Violated provisions relating to influencing a real estate appraisal (C.R.S. 12-61-910.2) Violated provisions relating to prohibited conduct involving fraud, misrepresentation, or conflict of interest (C.R.S. 12-61-911) Had a mortgage loan originator license revoked in any jurisdiction Within the last seven years, been convicted of or pled guilty or nolo contendere to a felony At any time, been convicted of or pled guilty or nolo contendere to a felony if related to fraud, dishonesty, breach of trust, or money laundering, unless a pardon for the conviction has been obtained Not demonstrated financial responsibility, character, and general fitness to command the confidence of the community and prove honest, fair, efficient, and consistent operation Not completed pre-licensing education or examination requirements (C.R.S. 12-61-905(1-1.5)) With regard to mortgage companies, the Board may deny an application for registration or suspend, revoke, or refuse to renew the registration. The Board may also enter cease and desist orders and impose fines if: There is reasonable cause to believe a person is acting without a license or registration The mortgage company fails to maintain possession of documents and records as required for four years for future inspection or use by an authorized Board representative The company employs or controls individuals who are unlicensed or whose licenses are not valid The company makes any sort of false or deceptive statement or representation regarding rates, points, or other terms and conditions for a residential mortgage loan, engages in bait and switch advertising, or violates other rules regarding advertising Colorado State Component v2.1 7
The Board may investigate the activities of any registered mortgage company either of its own volition or as the result of a written complaint from any person. A mortgage company found to be in violation of the law may be fined as follows: A fine of up to $1,000 per act in the first administrative proceeding A fine of up to $2,000 per act for subsequent administrative proceedings All fines collected will be placed in the Mortgage Company and Loan Originator Licensing Cash Fund (C.R.S. 12-61-905.1). Inactive Licenses The Board may declare a mortgage loan originator license or registration to be inactivated for any of the following reasons: Failure to comply with surety bond requirements or any related Board rule Failure to comply with E&O coverage requirements or any related Board rule Failure to maintain current contact, surety bond, or E&O insurance information Failure to respond to an investigation or examination Failure to comply with any education or testing requirements, or to register with and provide all necessary information to the NMLS (4 CCR 725-3 Rule 4.7) Individuals with inactive licenses are prohibited from acting as mortgage loan originators, and from engaging in mortgage-related activities that require licensure. To reactivate a license, an individual must provide the DRE will proof of compliance with current mortgage loan originator licensing law (4 CCR 725-3 Rule 4.8; Rule 4.9). License Maintenance In addition to meeting initial licensing requirements, mortgage professionals are required to meet and maintain certain standards of qualification to ensure that they are continually in compliance with the law. These standards include requirements for continuing education, information updates, recordkeeping, and more. This section will review those requirements in further detail. Continuing Education License holders are required to complete at least eight hours of continuing education each year, plus a two-hour Colorado-specific state update course prior to renewal. The eight hours must consist of the following: Three hours of federal law and regulations Two hours of ethics, including instruction on fraud, consumer protection, and fair lending Colorado State Component v2.1 8
Two hours of training related to lending standards for nontraditional mortgage loans One hour of undefined elective coursework 4 (4 CCR 725-3 Rule 3.1) State-licensed mortgage loan originators must keep records of completion of the Colorado twohour annual update course for a period of at least four years (4 CCR 725-3 Rule 3.3). Personal Information Updates and Required Notifications Licensed mortgage loan originators are required to notify the Division of Real Estate of the exact hire and termination dates for temporarily-licensed mortgage loan originators. Sponsoring loan originators are required to complete the mortgage loan originator temporary license update form and forward it to the Division of Real Estate, along with any other required information (4 CCR 725-3 Rule 2.5(B)). Licensed mortgage loan originators are required to maintain all current contact information and all required information for licensing on the Division of Real Estate database and the NMLS. Failure to do so is grounds for disciplinary action. This required information includes: Email address Legal first, middle, and last names Physical home address and home phone number Business name, address, and phone number Surety bond company, number, and effective date Errors and omissions insurance provider, policy number, and effective and expiration dates Convictions and pleas of guilt or nolo contendere for any crimes (4 CCR 725-3 Rule 5.10) Licensees are required to update the Board within 30 days of any changes to any of this information. Renewal Colorado mortgage loan originator licenses are issued to individuals who meet the statutory requirements and are valid for one year. Under the federal SAFE Act, licenses must be renewed each year. The renewal period for licensees in Colorado begins on November 1. Licenses that are not renewed by December 31 will expire. 4 http://cdn.colorado.gov/cs/satellite?c=page&childpagename=dora- DRE%2FDORALayout&cid=1251626932711&pagename=CBONWrapper Colorado State Component v2.1 9
To be eligible to renew, the license holder must continue to meet the minimum licensing requirements (such as having the surety bond and E&O coverage), have met all the continuing education requirements, and pay the applicable renewal fee (C.R.S. 12-61-903.7). The Board will issue or deny a license renewal or reinstatement within 30 days of submission of the renewal application and supporting information. Recordkeeping Requirements Mortgage companies are required to maintain any and all documents collected, gathered, and provided for the purpose of negotiating and originating residential mortgage loans. Records must be kept for a period of at least four years. In addition, companies must maintain any and all documents used for the purposes of soliciting or marketing to borrowers. Required documents include, but are not limited to: Uniform Residential Loan Applications (Form 1003) Required state and federal disclosures Asset statements Income documentation Verification of employment Verification of deposit Lender submission forms Advertisements Flyers HUD-1 Settlement Statements Uniform Underwriting and Transmittal Summaries (Form 1008) Credit reports (4 CCR 725-3 Rule 5.9(C)) Mortgage loan originators are required to maintain any and all documents used for the purpose of soliciting or marketing to borrowers. The Director s rules require that records be kept in a safe and secure environment. They can be kept electronically, as long as they are secure and accessible (4 CCR 725-3 Rule 5.9(D-E)). Licensees are also required to keep records of all disclosures for at least four years (4 CCR 725-3 Rule 5.21). Recordkeeping Requirements under the UCCC The recordkeeping requirements for those who make loans governed by the UCCC are similar to those imposed on license holders, as previously discussed. One additional requirement, however, is that an annual report must be filed by June 1 demonstrating proof of financial responsibility. If the licensee has not filed a report by July 1, a $5 per day fine may be imposed beginning July 2 for those who fail to file the report. If the report is not filed by July 15, the license automatically expires (C.R.S. 5-2-304). Colorado State Component v2.1 10
Suspension and Reinstatement If a license has expired, an individual may have their license reinstated. The reinstatement period begins on January 1 and extends until the last day of February of each calendar year. Reinstatement may only occur if the licensee is compliant with all requirements of the Mortgage Loan Originator Licensing Act and any Board Rules. Failure to renew or reinstate a license will require the individual to start the licensing process over (4 CCR 725-3 Rule 4.1). Individuals who have failed to maintain a valid license for a period of up to five years after expiration, and who are compliant with annual continuing education requirements, must take the following steps in order to reinstate their license: Register with the NMLS Submit fingerprints Obtain a compliant surety bond and compliant E&O coverage Complete the license application and pay the application fee Individuals who have failed to maintain a valid license for a period of up to five years after expiration and who are not compliant with continuing education requirements must complete the 20 hours of pre-licensing education required under federal law (4 CCR 725-3 Rule 4.3). Individuals who do not have an active license are prohibited from acting as mortgage loan originators, and from engaging in any mortgage-related activities that would require licensure in Colorado as a mortgage loan originator (4 CCR 725-3 Rule 4.4). More information about the circumstances under which a license may be suspended can be found in the Disciplinary Action section of this course. Colorado State Component v2.1 11