We have: Licensed loan originators and registered loan originators.
The SAFE Mortgage Licensing Act of 2008 requires licensed loan originators to demonstrate financial responsibility. The Dodd Frank Act of 2010 mandates that registered loan originators (LOs who work at a depository bank) be held to the same standards as licensed LOs.
Chris Hoch already posted the verbiage from The Act below:
"(3) The applicant has demonstrated financial responsibility, character, and general fitness such as to command the confidence of the community and to warrant a determination that the loan originator will operate honestly, fairly, and efficiently within the purposes of this chapter."
This sound broad and vague. Basically, loan originators need to have a history of paying their bills on time. People who have a history of financial mismanagement are showing poor decision-making skills revolving around money. If a person is having financial problems, then that person is in position to need to obtain money in order to take care of himself/herself and his/her family. That has shown to lead to consumers being harmed. For example, steering consumers into lower quality loans because the LO was paid more or paid a high bonus for selling that loan product.
Since the loan originator license is issued not only through the Nationwide Mortgage Licensing System but ALSO through the state, it's really the state that sets the guideline on how bad of a financial scenario they are willing to accept.
The SAFE Act does specify: NO felony convictions at all within 7 years of licensure. And no felony convictions of any time in a person's life if the felony conviction was related to a financial crime. Even if that felony happened a really long time ago. So for example: writing bad checks to a point of a felony conviction would ban this person from holding a loan originator license at any time in his/her life, even if the person is 50 and the bad check writing happened as a teenager. This also includes mortgage fraud felony convictions. These folks are banned from the entire industry for the rest of their lives. They are not allowed to hold any position in the mortgage industry if convicted of mortgage fraud at any time.
Too many mortgage fraud felons end up becoming real estate agents and I wish we could ban this. They typically move to a different state and change their name and presto! They're now selling real estate.
But I digress.
In WA state, we set the bar as follows: If you owe the IRS more than $100,000. you cannot obtain a loan originator license. Wow, that does not sound like a lot of fun. So once you get with the IRS and get that mess cleaned up, you apply for an LO license. I have also seen states ban someone from obtaining an LO license due to repeated bankruptcies over the course of many years.
Check with your state's department of financial institutions. Find their website, then find the department that oversees mortgage lenders and mortgage brokers. Find their state law and rules regarding loan originators....then find the "definitions" section of their state law and see how your state defines "financial responsibility." If all else fails, just call them and ask for the licensing department.
If you've had financial problems in the past, that doesn't mean that you will not obtain an LO license. But you may be asked by your state's department of financial institutions to write a letter explaining what happened. By all means do not lie to your regulator when you write this letter. They are like your mother and will always find out the truth. Now you have an even worse problem: Lying to your regulator is one of the things that will prevent you from obtaining a license so just tell them the truth. They're gonna do a 50 state background check on you anyways along with running your fingerprints through the FBI.