The Massachusetts Division of Banks has joined more than 40 other regulatory agencies nationwide in settling with hundreds of mortgage loan originators who allegedly participated in schemes to avoid taking required classes to maintain mortgage licenses.

Led by the California Department of Financial Protection and Innovation (DFPI), the agencies from 42 states have reached settlements with 441 mortgage loan originators who “deceptively claimed to have completed annual continuing education as required under state and federal law,” according to a statement yesterday from the Conference of State Bank Supervisors.

CSBS, a trade group representing state banking agencies, also operates the Nationwide Mortgaging Licensing System, which provides a record of mortgage loan originators licensed in each state.

Minimum standards for licensing and registering mortgage loan originators were created by the federal Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act in 2008 to reduce fraud and protect consumers. States are required to enforce these standards using their own version of the SAFE Act, the CSBS said, and mortgage loan originators must have at least 20 hours of pre-licensing education and eight hours of continuing education each year.

The scheme involving continuing education requirements was uncovered in December 2020 through a gesture-driven authentication tool called BioSig-ID, a tool the CSBS said it uses to monitor online courses.

The tool found that mortgage loan originators nationwide had not taken the courses they claimed to have completed, the CSBS said. The loan originators were all tied to Real Estate Educational Services (REES), a former NMLS education provider based in Carlsbad, California.

Danny Yen, REES’ owner, was authorized to offer one eight-hour SAFE Act course, according to a CSBS document providing background on the settlement. The state agencies allege that Yen conducted two education fraud schemes from 2017 to 2020: a scheme where Yen completed online education on behalf of mortgage loan originators and another where Yen granted course credit to loan originators who did not attend the course.

Yen faces administrative enforcement actions for providing false certificates and taking courses on behalf of mortgage loan originators at other education providers, violations of the SAFE Act, the CSBS said. These enforcement actions are being handled by agencies in California, Maryland and Oregon.

An investigation taskforce, which included 26 of the state agencies, found 608 loan originators involved with REES. About 450 received a settlement offer, and 441 entered into consent orders.

The consent orders call for the loan originators to surrender their licenses for three months and pay a $1,000 fine for each state in which they hold a license. To reapply for a license, the loan originators must retake the 20 hours of pre-licensing courses and eight hours of continuing education courses. These loan originators will not be eligible for online self-study courses.

The companies where these loan originators work have not been implicated in the scheme, the CSBS said, and the state agencies have no plans to pursue enforcement actions with the companies, even those owned by the loan originator.

Mortgages made by the loan originators remain valid, the CSBS said. However, the CSBS recommended that companies that have loans currently in progress originated by someone involved in the settlement should contact the state agency based on where the property is located.

“State financial regulators do not take these violations lightly,” CSBS Chair and Montana Commissioner of Banking and Financial Institutions Melanie Hall said in the statement. “Through states’ collective action, consumers can be assured that their mortgages are being handled by loan originators who follow the law and are up to date in their education requirements.”

States Settle With LOs Accused in Education Scheme

by Diane McLaughlin time to read: 2 min