Sponsorship Lapse and Cross-State Origination
A mortgage loan originator holds an active Connecticut MLO license sponsored by Broker A. On Friday, August 2, the MLO resigns and agrees to join Broker B. Broker A terminates its sponsorship in NMLS on Monday, August 5. Broker B submits a sponsorship request on Wednesday, August 7. On Thursday, August 8, NMLS still shows the MLO’s Connecticut license as “pending sponsorship.” The MLO takes a Connecticut purchase application that day, locks the borrower at 6.375%, and tells the borrower, “My license is fine; it is just administrative.” On Friday, August 9, a real estate agent asks the MLO to take an application for a property in New York. The MLO has never been licensed in New York but says, “I can do it under my Connecticut license because the borrower lives in Connecticut.”
1. Was the MLO authorized to take the Connecticut application on August 8?
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No. A Connecticut MLO license must be sponsored by a licensed Connecticut mortgage lender or broker. When Broker A terminated the sponsorship, the MLO’s license was no longer in an active status. A pending sponsorship request is not an active license. Taking an application and locking a rate are origination activities that require an active license and sponsorship. The MLO’s statement that the issue is “just administrative” is incorrect. The MLO should have waited until NMLS showed the Connecticut license as active under Broker B before taking the application. The broker should also have controls to prevent an unsponsored MLO from originating. The file should be reviewed by compliance, and the borrower should be reassigned or the application handled only after the license is active.
2. What should the MLO and Broker B have done before the August 8 application?
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Broker B should have submitted the sponsorship request promptly and waited for NMLS to approve it before allowing the MLO to originate. The MLO should have confirmed the license status in NMLS, not relied on oral assurances. If the MLO wanted to maintain continuity, the MLO and brokers could have coordinated the resignation and sponsorship transfer so that the license did not lapse, but only if the transfer could be completed without a gap. Broker B should have a written onboarding procedure that checks license status, sponsorship, and any state-specific requirements before assigning leads or allowing rate locks. The MLO should not have told the borrower the license was fine without verification.
3. Can the MLO take the New York property application under the Connecticut license?
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No. Mortgage origination licensing is state-specific. A Connecticut MLO license does not authorize origination of a loan secured by New York property, even if the borrower lives in Connecticut. New York generally requires an MLO license for loans secured by New York property, and the MLO would need to be licensed and sponsored in New York before taking the application. The MLO should refer the borrower to a New York-licensed MLO or wait until properly licensed in New York. The fact that the borrower resides in Connecticut does not cure the New York licensing requirement. Taking the application without New York licensure could result in state licensing discipline and could create liability for the broker.