California Amends Mortgage Originator Testing and Education Requirements

The state of California has made significant changes to the testing and education requirements for its mortgage loan originators licensed under the California Finance Lenders Law and the California Residential Mortgage Lending Act. Governor Jerry Brown signed SB 1459 into law on July 10, 2014, and the measure took effect on January 1, 2015.

The law allows an applicant for a mortgage loan originator license to pass a qualified written test developed by the Nationwide Mortgage Licensing System (NMLS) as part of the state’s written test requirement. Under the old law, a mortgage loan originator applicant had to satisfy the testing requirement by passing the National SAFE Act Test component with the Uniform State Test (UST) component and a separate California state-specific test. Under the new law, the pre-licensing test requirement may be satisfied by passing only the National Test and the UST. This means California mortgage loan originator applicants will no longer have to take a separate California state-specific test.

The law is now being implemented by the California Department of Business Oversight (California DBO). When the California DBO adopts the UST at a future date, it will become the 47th state mortgage agency to do so.

The law also establishes new pre-licensing and continuing education requirements for mortgage loan originators. Specifically, the law requires an applicant for a mortgage loan originator license to complete two hours of approved education related to relevant state law and regulations. It also requires a current licensee to complete one hour of continuing education related to relevant state law.

Overall, the law requires that a mortgage loan originator applicant complete at least 20 hours of approved education, including at least:

  • Three hours of instruction on federal law and regulations
  • Three hours of ethics, which must include instructions on fraud, consumer protection, and fair lending issues
  • Two hours of training related to lending standards for the nontraditional mortgage product marketplace
  • Two hours of training related to relevant California law and regulations

Further, SB 1459 states that current licensees must complete at least eight hours of approved continuing education each year, including at least:

  • Three hours of instruction on federal law and regulations
  • Two hours of ethics, which must include instruction on fraud, consumer protection, and fair lending issues
  • Two hours of training related to lending standards for the nontraditional mortgage product marketplace.
  • One hour of annual training related to relevant California law and regulations  

The law allows pre-licensing and continuing education requirements to be offered in a classroom, online, or by any other approved means. Education requirements approved for any other state are accepted as credit toward completion of education requirements in California.

Note that California has three state regulatory regimes that apply to lenders that employ residential mortgage loan originators. The California Finance Lenders Law and California Residential Mortgage Lending Act are administered by the California DBO. The other is the California Real Estate Law, which is administered by the California Bureau of Real Estate. The changes made by SB 1459 only affect mortgage loan originators who work for lenders licensed under the California Finance Lenders Law and the California Residential Lending Act. Accordingly, mortgage loan originators subject to the California Real Estate Broker Law must still pass a separate state-specific test.