Last year, when COVID-19 first hit the country nationwide, many state regulators were quick to act, and temporarily allowed licensed companies and their licensed mortgage loan originators (“MLOs”) to originate residential mortgage loans from their home or another alternate location without the home or the alternate location being licensed as a branch office of the licensed company.

During the past year, vaccines have been developed and approved to combat COVID-19. Although the vaccines are working, getting everyone vaccinated is taking time, the coronavirus may be mutating into a more virulent “son/daughter-of-the-Coronavirus,” and Dr. Fauci is predicting that it may be much later this year before we can emerge from our pandemic cocoons, and return, if possible, to the “old normal.” Given the delay in VC-19 day (“Victory over COVID-19”), we wondered whether state regulators were extending the period in which licensed MLOs could work from their home or another alternate location without requiring a branch office license for the home or the alternate location.

Therefore, this month, we reviewed what each state has issued publicly with respect to branch licensing of an MLO’s home or another location, and we also connected with regulators in each state to more fully understand the position the state had taken with respect to relief from this branch office licensing obligation. In each state we researched what the state regulators had issued, and examined: (i) whether the state will allow a licensed MLO to work from home or other location; (ii) whether the home or other location will need to be licensed as a branch; (iii) if branch licensing is not needed, whether some other approval of the state regulators is needed for the licensed MLO to work from such an unlicensed location; (iv) if a branch license or other approval is not needed, whether notice that an MLO is working from an unlicensed location must be provided to the state regulators; and (v) whether the state has extended the “no branch license period.”

We were surprised to see that regulators in nearly every state had taken a position on this branch licensing issue, as most state regulators do not generally provide any relief from branch licensing, but the pandemic caused many state regulators to reconsider how mortgage loans could be safely originated. Provided certain criteria are met, nearly every state allows licensed MLOs to work from his or her home, but far fewer states allow licensed MLOs to work from some other unlicensed location. A few states provide relief from branch licensing without any conditions being imposed, but for many, relief from licensing requires strict adherence to certain conditions or criteria. It is not uncommon to find that a state would not require branch licensing of an MLO’s home or other location, provided (i) a consumer’s personal information is not compromised, (ii) the licensed MLO does not meet consumers or prospective borrowers at the unlicensed location, and (iii) that licensable activities are not conducted from the unlicensed location. We recognize that protecting a consumers personal information is of the utmost importance, regardless of whether the mortgage loan is originated from a licensed or unlicensed location. We also can understand not meeting a prospective borrower at an MLO’s unlicensed home or other unlicensed location (we are in the midst of a pandemic after all). However, as we reviewed the guidance, we did not immediately understand what was meant by the condition that “branch licensing or some other approval is not required, provided no licensable activities are conducted from the home or other unlicensed location.” Generally, if no licensable activities are conducted from the unlicensed location, a branch office license would not be needed in any event. Accordingly, with respect to certain of the states with such a condition, we have asked state regulators to clarify what is intended.

Certain other criteria that must be met in some states include, but are not limited to: (i) having procedures in place to supervise the MLOs, (ii) the MLO’s secure access to the licensed company’s secure origination system, (iii) not keeping physical business records at a location other than a licensed location, and (iv) not having the address of the unlicensed location on business cards, stationery, or advertising. These are but a few of the criteria that states impose, and which vary by state. A licensee should review the full list of criteria required of the states in which it would originate mortgage loans from an unlicensed home or other authorized unlicensed location.

In most states, the authority for an MLO to originate mortgage loans from his or her unlicensed home was issued in 2020, with no expiration date, and the state issued guidance is still in effect. Some states have made it a point in their issued guidance to definitively state that such relief from branch licensing is temporary. Other states expressly provide that the relief from branch office licensing will continue until the authority is revoked or terminated. Some states have extended this “relief from branch licensing period,” with a few doing so until the end of 2021. Many other states that adopted this “relief from branch licensing” in 2020 have not publicly extended this relief from branch licensing, but told us upon our inquiry this month that the issued 2020 Guidance providing relief from branch licensing is still being followed.

A number of states indicate that the relief from branch licensing would continue until ended, but only a handful of states indicate that they would provide advance notice as to when this relief from branch licensing would be ending. State regulators do not indicate what happens to license applications taken at a branch office of a licensee during this “relief from branch licensing period,” if the relief from branch licensing is terminated before the mortgage loan is approved. We believe that any mortgage loan application taken from an MLO’s home or other authorized location during this “relief from branch license period” should be allowed to close without the licensed MLO or the licensed mortgage company being subject to sanctions or penalties.

If a branch license or some other approval is not required to originate mortgage loans from an MLO’s unlicensed home or other location, then in a few states, the licensed company must notify the state regulators of the activity being conducted from the unlicensed location or provide a list of the licensed MLOs working from such an unlicensed location.

We trust this provides some insight into each state’s current position on this “relief from branch licensing issue.” We are hopeful that regulators in some state will have learned positive lessons from the relief from branch licensing that they authorized and will apply these lessons to permanently provide relief from branch licensing when COVID-19 is yesterday’s news. Should you have any questions about a state’s position on this licensing issue, or any novel issues encountered in the marketplace, we look forward to hearing from you.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.