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The MLO's Recordkeeping and NMLS Renewal

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The MLO's Recordkeeping and NMLS Renewal

You are an MLO with 10 years of experience. You recently left your employer, ABC Mortgage, and joined XYZ Lending. During your exit, you copied your entire client database, including loan files, to your personal laptop to 'stay in touch with clients.' You also took copies of loan documents for loans you originated at ABC, including credit reports and income statements. You did not have ABC's permission. You have not yet updated your NMLS record to reflect your new employer. Your NMLS license is up for renewal in two months. You have completed 8 hours of continuing education (CE) so far, but you need 20 hours total, including 3 hours of federal law, 3 hours of ethics, and 2 hours of non-traditional mortgage lending. You have not taken the Arkansas-specific CE. You are busy and considering skipping the Arkansas CE because you plan to originate only in Texas. What are the compliance issues, and what should you do?

1. What are the legal and regulatory issues with taking client files and loan documents to your new employer?

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Taking client files and loan documents without permission raises several issues:

  1. Confidentiality breach: Mortgage loan files contain nonpublic personal information (NPI) protected under the Gramm-Leach-Bliley Act (GLBA). As an MLO, you have a duty to protect NPI. Unauthorized removal and retention of these files is a violation of GLBA and company policy.
  2. Privacy laws: Arkansas law also protects consumer information. Unauthorized access or disclosure can lead to civil liability and regulatory action.
  3. Theft of trade secrets: Client lists and loan files may be considered trade secrets of ABC Mortgage. Taking them could be a breach of your employment agreement and could lead to lawsuits.
  4. NMLS record: You must update your NMLS record within 30 days of changing employment. Failing to do so is a violation of the SAFE Act and can result in license suspension.
  5. Loan documents: Credit reports and income statements are sensitive. You should not have them on your personal device. This could be a data security breach.

You should immediately:

  • Return or destroy all client files and loan documents taken from ABC.
  • Notify your compliance department at XYZ Lending and possibly ABC.
  • Update your NMLS record to reflect your new employer.
  • Ensure you have written permission to use any client information.
  • Implement secure handling of any client data you legitimately have.

2. What are the CE requirements for NMLS renewal, and what are the consequences of not completing them?

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CE requirements for NMLS renewal:

  • Total 20 hours of CE annually, which must include:
    • 3 hours of federal law and regulations
    • 3 hours of ethics (including fraud, consumer protection, and fair lending)
    • 2 hours of non-traditional mortgage lending
    • 12 hours of general electives (or state-specific if required)
  • For Arkansas, MLOs must complete 2 hours of Arkansas-specific CE if they are licensed in Arkansas. Even if you plan to originate only in Texas, if you hold an Arkansas license, you must complete the Arkansas CE to renew it. If you do not intend to originate in Arkansas, you could surrender your Arkansas license, but that may affect your ability to work for XYZ if they do business in Arkansas.

Consequences of not completing CE:

  • Your NMLS license will not be renewed, and you will be unable to originate loans legally.
  • You may be subject to fines and penalties for operating without a license.
  • Your employer may terminate you.

You should:

  • Complete the remaining 12 hours of CE, including the Arkansas-specific 2 hours if you keep your Arkansas license.
  • Do not skip the Arkansas CE if you are licensed there. If you are not licensed in Arkansas, then you don't need it. But the scenario says you have an NMLS license and are considering skipping the Arkansas CE because you plan to originate only in Texas. If you are licensed in Arkansas, you must complete it. If you are not licensed in Arkansas, then you don't need it. However, the scenario implies you are licensed in Arkansas. So you must complete it or surrender the license.
  • Update your NMLS record with your new employer immediately.
  • Ensure you have completed all required CE before the renewal deadline.