Sponsorship Lapse at a Portsmouth Brokerage
Dana is a mortgage loan originator licensed in New Hampshire and sponsored by Coastal Mortgage LLC, a licensed mortgage broker in Portsmouth. On March 3, the New Hampshire Banking Department suspends Coastal's license for failing to file its annual report and pay a $2,500 assessment. Coastal's branch manager tells Dana, "The suspension is on the company, not you-keep taking applications." Dana's own NMLS record still shows "approved." Between March 4 and March 20, Dana takes three applications for New Hampshire properties, locks one borrower at 6.375%, collects $900 in application fees, and lists Coastal's NMLS ID on the disclosures. One borrower later asks for Dana's license information and the name of the licensed entity. Dana says, "I'm licensed, and Coastal is just the sponsor."
1. Was Dana authorized to take the three applications and lock the rate after Coastal's suspension? Explain the licensing relationship.
Read the worked answer
No. New Hampshire's SAFE Act-compliant regime under RSA 397-A licenses the individual MLO, but the license is not a free-standing authorization to originate anywhere. The MLO must be sponsored by, and act for, a licensed mortgage banker or broker. Coastal's suspension removed the licensed entity through which Dana could lawfully originate. Dana's NMLS status still saying "approved" does not cure that defect because approval reflects the individual record, not the sponsor's authority. Taking applications, locking a rate, and collecting fees are origination activity. The branch manager's statement is wrong: a company suspension is not a personal suspension, but it does cut off the sponsorship that makes the individual license usable. Dana needed either a reinstated Coastal license or a new licensed sponsor before continuing.
2. What should Dana do immediately, and what consequences should Dana anticipate from the Banking Department?
Read the worked answer
Dana should stop all origination activity, including advertising and rate locks, and document the dates of the three applications. Dana should notify the borrowers in writing that Coastal's license was suspended, identify any fees collected, and either place the fees in a segregated account or refund them if no services can lawfully be provided. Dana should update NMLS, seek a new licensed sponsor, and cooperate with the Banking Department rather than waiting for an examination request. Anticipated consequences include an investigation for unlicensed activity, possible suspension or revocation of Dana's MLO license, fines, restitution, and civil exposure to borrowers. Listing Coastal's NMLS ID after the suspension also creates a misleading disclosure issue. Dana should preserve all records and avoid backdating or altering documents.
3. Does listing Coastal's NMLS ID on the disclosures cure the problem?
Read the worked answer
No, and it may worsen the problem. The NMLS ID identifies a licensed entity, but Coastal was suspended when the disclosures were given. Using the ID made the documents appear to show a lawful sponsorship that no longer existed. New Hampshire consumer protection principles prohibit misleading representations about licensing and the entity behind the loan. A correct disclosure would have named the actually licensed sponsor at the time of the application. Because there was none, the proper course was not to take the application. The ID issue is therefore evidence of a misrepresentation, not a technical fix. It also undermines Dana's argument that the borrowers were adequately informed.