One of my readers asked me about the state’s new law requiring mortgage originators to be licensed in Colorado. I wrote about this several month’s ago, but thought the issue warranted an update.

Overall, Colorado is on track to have a real mortgage broker licensing program effective January 1, 2009. As of that date, most mortgage originators will need to have all of the following in place:

1.                  A complete criminal background check complete with fingerprints submitted to the Colorado Bureau of Investigation.

2.                  Possession of a surety bond for at least $25,000.

3.                  Possession of Errors and Omissions Insurance with coverage for a minimum of $100,000 per claim, and an annual limit of $300,000.

4.                  Full disclosure to the Division of Real Estate regarding any adverse administrative disciplinary action taken against the applicant in any other related field. (as a Realtor, attorney, insurance agent, stock broker, etc) The idea being that if you lost your license in any of these related fields, you won’t be able to get a mortgage broker license here.

5.                  Completion of 40 hours of required education approved by the Division of Real Estate.

6.                  Satisfactory passing grade on a state sponsored exam.

7.                  9 hours of continuing education every 3 years thereafter, in order to renew your license.

Even now, most mortgage originators need to have items 1-4 in place, just to be in business as of January of this year. So Colorado will no longer be just one of two states left without a license program. In fact, we will have one of the toughest programs of any state in the union.

“But what do you mean by ‘most’ mortgage loan originators?” you ask. “Don’t ALL mortgage originators need to have a license?” Well for some curious reason, mortgage originators who work for a federally regulated bank, or a company that has an affiliation with a federally regulated bank, are excluded from all of the above requirements. That means approximately a third to a half of all mortgage loan originators operating in Colorado are exempt from licensing. Can anyone say, “Careful, huge political lobby at work!” After all, every Realtor has to have a license, as does any appraiser, lawyer, accountant, insurance agent, or stock broker. It certainly doesn’t matter if those professionals work directly or indirectly with a federally chartered bank.

Now in conclusion, that doesn’t mean that all mortgage originators at places like Wells Fargo, Countrywide, or Bank of the West have anything to hide, or couldn’t pass the mortgage broker test. Some of my best friends in this business work for these very institutions, and are great at what they do. Most of them have indicated to me that they intend to get their license anyway, just to make sure their clients don’t think anything less of them. But as a consumer you need to be aware, at least, that there is this huge gap in the new licensing law. And when have you ever seen a huge gap left in any law, that didn’t get exploited one way or another?