Karen Kulwin: State Regulators are Increasing Their Scrutiny of Mortgage Licensing Requirements


PERSON OF THE WEEK: Licensing is an extremely important aspect of mortgage compliance, yet it is often taken for granted. Most of the entities involved in the mortgage process – including brokers, LOs, correspondents, loan processors, retail lenders, wholesale lenders, warehouse lenders, underwriters, master servicers, primary servicers, subservicers, special servicers and debt collectors, etc. – require licensing services.

What’s more, licensing is an extremely complex category within mortgage compliance, as it comprises a patchwork quilt of federal and state regulations. To learn more, MortgageOrb recently interviewed Karen Kulwin, licensing and compliance counsel, Wipro Ltd., parent company of Wipro Opus Risk Solutions.

Q: Can you please start by generally explaining how licensing applies to the mortgage industry?

Kulwin: In the mortgage industry, licensing structures generally cover origination and servicing. Origination licensing commonly involves lender/brokers with a smattering of other license types, such as consumer credit license, residential mortgage originator license. Servicing includes these same licenses but also through servicer and debt collection licenses, and exempt registration. 

There are licensed activities that are complimentary to consumer lending and servicing, such as first- and third-party debt collections and mortgage and non-mortgage loan modifications. 

However, additional licensing can be required to offer these services more broadly. For example, financial institutions that offer other lending products should understand that additional licensing is likely required for private student loan lending and servicing, non-private student loan servicing, lead generation, non-mortgage consumer loan/lending origination and servicing and deposit products. Financial institutions that need state licenses need to decide whether it is more cost effective to obtain the licensing or outsource to a licensed third party. 

Q: What are some best practices or lessons learned regarding licensing that a lender may use in other lines of business? 

Kulwin: It’s really a matter of issue-spotting for consumer lending, and as in most things we learn by analogy. After a company has gone through the exercise of obtaining licenses that support specific activities offered by the company, they should look at all activities – current or prospective – for license implications. Any activities related to consumers need to be reviewed for licensing requirements, this includes consumer-facing activities and activities that involve consumer information. It’s an intensive and exhaustive exercise.

The Nationwide Multistate Licensing System (NMLS) is a great source for available or required mortgage-related licensing, but it’s only a fair resource for other types of state licenses. My recommendation for lenders (and servicers) that want to engage in getting licensed: Be prepared to do a lot of research and analysis, and don’t stop at the obvious. 

Q: What are some of the key questions to ask an outsource partner to determine if they have the correct licensing? 

Kulwin: First, the financial institution or client needs to be aware that there are licensable activities and have a general understanding of those activities. Also, it isn’t a matter of if the client needs a license – the issue is if the vendor/third-party needs the license to perform the activities. Not all companies have the same licenses or are able to provide services offshore. Obtaining work should not be a race to the bottom. Work can be outsourced but the responsibility for (what) stays with the financial institution. 

Companies looking to outsource work should ask potential partners if they have identified necessary licensing requirements. Some potential questions to ask include the following:

  • Were attorneys involved in the analysis and determination?
  • How frequently are the licensing requirements reviewed?
  • What does the company do to stay up-to-date on new regulations and licensing requirements? 
  • What is the most-recent change to licensing in their area, and what are they anticipating in the near future?
  • Why can this company perform work in states or countries that other companies say are “off limits”?

Q: How does a licensed entity help enhance execution levels for non-QM and QM lenders?

Kulwin: It’s generally known that failures to originate a loan according to regulatory, lender and insurer guidelines could have adverse consequences, including buybacks, indemnifications, and rendering a loan non-saleable.

Licensing holds the entity to a higher standard due to regulatory oversight, which includes periodic requests for information and examinations. In addition to that, companies that have state-level mortgage licenses are managed by qualified individuals who have a state-level mortgage loan originator license. These individuals take the NMLS SAFE 20 training, the state-specific training, and must pass all exams to get their licenses; they also need to take annual continuing education to maintain their licenses. The training and expertise of the licensed individuals ensures an understanding of the regulations, including complying with underwriting guidelines, performing pre-closing due diligence, and credit reviews. 

Q: What trends do you see around licensing that lenders should be aware of now? 

Kulwin: We are seeing more activity with the regulators returning to pre-COVID levels. We could also see increased activity by the regulators as they work to recover their examination schedules post-COVID. Lenders, as part of the information provided to their regulators, include the list of vendors, contracts, and other information related to the services the vendor(s) provide.  The information also includes the lender’s due diligence on the vendor and monitoring its work performed and compliance with regulations. 

Q: What kind of movement are we seeing by states that points to there will be more requirements related to licensing?

Kulwin: We are seeing a reversal of the deregulation that eased compliance burdens in 2017 and 2018. Also, state regulators are increasing their scrutiny of the consumer finance sector; regulation by states is on the rise. For example, we expect a revival in the attempts to add student loan servicing license regulations. We are also starting to see more licensing requirements from regulatory agencies such as the California Consumer Financial Protection Law and the Debt Collection Licensing Act. States, like California, are a bellwether for legislation in other states.

Q: How did you end up becoming a licensing expert?

Kulwin: I have always been something of a technical thinker: I question how things work, and I like solving puzzles and knowing things other people may not want to know. I also enjoy providing help and guidance. As a compliance attorney, I get to read regulations, mine for requirements, resolve possible inconsistencies or contradictions, learn what the company does and determine regulatory implications. I help the company develop a structure that keeps it safe. It’s the best job.

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