MLO Mentor: California Finance Act

MLO Mentor is an ongoing series covering compliance best practices for Mortgage Loan Originators (MLOs). This article walks you through licensing under the California Finance Act (CFL).

California finance law

Mortgage originators may choose to request Licence under the California Licensing Law (instead of the California Residential Mortgage Lending Act). CFLs approve lenders whose main activity is to consumer loans and or commercial loans. This includes acting as a lender or broker.

However, a CFL licensee can only negotiate loans with CFL lenders. [Fin C §§22009, 22004] A business loan is a loan with principal of $5,000 or more, secured or unsecured, and used primarily for business purposes. [Fin C §22502]

On the other hand, a ready for consumption is a loan, secured or unsecured and used primarily for personal, household or family purposes. Under the CFL, a residential mortgage loan is a consumer loan secured by one to four unit residential real estate. A CFL licensee is only allowed to make a residential mortgage loan of $5,000 or more. [Fin C §§22203, 22012, 22330]

A CFL licensee who provides residential mortgage loans is required to apply for and obtain a CFL license through the National Mortgage Licensing System (NMLS). A CFL licensee who only makes commercial loans is exempt from licensing under the SAFE Act. Instead of applying for a license through the NMLS, a CFL licensee who only provides commercial loans applies for their license directly through the Department of Financial Protection and Innovation (DFPI).

For the origination of residential mortgage loans, the CFL license is an alternative to:

  • DFPI license under the California Residential Mortgage Law (CRMLA); and
  • DRE license under the Real estate law.

MLOs may obtain approval to issue residential mortgages under one or more of these programs. MLO activities and employment will determine which license to pursue.

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A two-level structure

Similar to the CRMLA program, under the CFL program, the NMLS recognizes two types of licenses:

  • the individual MLO license; and
  • the CFL license.

A Individual MLO is a natural person who, for remuneration or gain:

  • takes a residential mortgage application;
  • proposes the terms of the residential mortgage loan; or
  • negotiates the terms of a residential mortgage loan. [Fin C §22013]

CFL licensees can only originate or negotiate residential mortgages through an individual MLO. [Fin C §22100(d)]

Additionally, CFL licensees are prohibited from employing an MLO whose MLO license or approval has expired. [Fin C §22100(c)]


Subscribers and loan processors employed by a CFL licensee are not required to hold an MLO license, provided they do not engage in MLO activities. However, contract underwriters and loan processors are required to hold an MLO license to offer contract underwriting or residential mortgage processing services. [Fin C §§22013(b), 22014]

Also exempt from licensing under the CFL are:

  • banks, trusts, credit unions, and other lenders that make loans under a government charter [Fin C §22050(a)];
  • DRE-licensed real estate brokers who grant or arrange a loan secured by a residential property of one to four units [Fin C §22057];
  • federally registered MLOs employed by a federally regulated depository institution or a subsidiary of a federally regulated depository institution [Fin C §22100(g)]; and
  • CRMLA and MLO Licensees Employed by CRMLA Licensees. [Fin C §22060]

CFL licensee

All entities – corporations, limited liability companies (LLC), partnerships, trusts and sole proprietorships – are eligible to obtain a CFL business license. [Fin C §22008]

Out-of-state entities are eligible for CFL licenses, but must appoint an agent for service of process in California. Out-of-state CFL licensees are required to make their mortgage records available upon request from the DFPI and pay reasonable travel, meal, and lodging expenses for an out-of-state review of mortgage records. CFL license holder. [Fin C §22106(b)]

For NMLS licenses, a CFL company consists of several types of users:

  • the company’s license, using the MU-1 deposit;
  • the controlling person, qualified person, officers and owners holding a 10% or more interest in the company, using the MU-2 file; and
  • the MLOs employed by the company’s license, using the MU-4 repository. [Fin C §22105]

As with the CRMLA license, applying for a CFL license begins with opening a business account.

Complete the MU-1

The MU-1 is the filing form of the NMLS company. To create a CFL company, the control person must log in to the newly created company account and file the MU-1.

The information to be provided as part of the MU-1 file includes:

  • any trade names used;
  • a registered agent for the process service;
  • identification of the eligible person on file;
  • disclose and explain any disciplinary action against the Control Person, Qualified Person, or Company Owners and Officers;
  • unaudited financial statements prepared in accordance with generally accepted accounting principles dated within 90 days of the request and indicating a minimum net worth of $250,000 for residential mortgage lenders and $50,000 for residential mortgage brokers [Fin C §22104(b)-(c)];
  • a business plan;
  • a Certificate of Good Standing from the California Secretary of State (SOS);
  • incorporation or incorporation documents, if any;
  • a dashboard ;
  • an organizational chart;
  • bonding coverage of $25,000 to $200,000 for each business license, depending on the business’s residential mortgage volume in the previous year [10 CCR §1437];
  • fingerprints and background check authorization for controlling members of the company [Fin C §22101(b)];
  • authorization to disclose financial documents; and
  • fees paid to the DFPI through the NMLS. [Fin C §22109.6(b)]

The total fee due with an MU-1 filing for a CFL licensee is $400.

A CFL licensee must provide written notice to the DFPI if the company, its officers or personnel are subject to criminal action. [10 CCR §1411]

A change in ownership or management of the business must be reported to the DFPI within 30 days of the date of the change. An update must also be filed with the NMLS for these changes. [10 CCR §1409]


A CFL licensee has a duty to diligently supervise the individual MLOs under their license. To properly discharge this obligation, the CFL licensee must create a document setting out the procedures to be followed by its personnel. [10 CCR §1414(a)-(c)]

Every CFL license holder needs a Designated Qualified Person. The qualified person is responsible for periodically reviewing the activities of branch managers, all business locations of the CFL Licensee and the activities of MLOs employed by the CFL Licensee. [10 CCR §1414(d)-(e)]

Reasons for refusing a CFL license

The DFPI Commissioner may refuse a CFL license application if:

  • the applicant misrepresents a material fact in the application;
  • over the past ten years, any officer, director, general partner or person holding 10% or more of CRMLA has been:
    • convicted of a crime;
    • did not contest a crime; or
    • committed any act involving dishonesty, fraud or deception, if the crime or act is substantially related to the qualifications or duty of a CRMLA licensee;
  • an officer, director, general partner, or person owning 10% or more of CRMLA has ever violated the laws or regulations of any state or federal licensing regime; or
  • the applicant employs an MLO that is not licensed in that state, unless the MLO is exempt from the licensing requirement. [Fin C §22109(a)]

Candidates are required to provide full details of each crime or dishonest act as part of their disciplinary history. Failure to fully disclose all crimes and dishonest acts, regardless of when they occurred, is considered a misrepresentation of material fact – which subjects the claimant to a denial of license.

A CFL license applicant has 90 days from the date of a notice of deficiency to correct any deficiencies in the application. Within 60 days of receiving a complete application through the NMLS, the DFPI will either approve the application or file a Statement of Issues addressing the issues with the application. [Fin C §22109(b)-(c)]

License renewal

CFL licenses and individual MLO licenses are valid until December 31 of each year if issued before November 1st. Riders issued on or after November 1st are valid until December 31 of the following year.

Both types of licenses are renewed every calendar year between November 1 and December 31. Renewal consists of confirming that the information in the register of the NMLS is always up-to-date and correct.

The annual MLO DFPI renewal processing fee is:

  • $100 for businesses;
  • $30 for individuals; and
  • $20 for branches.

Individual MLOs under the DFPI are required to:

  • complete eight hours of NMLS-approved continuing education, including one hour of DFPI-specific mortgage law; and
  • in addition to the processing fee, pay an annual renewal fee of $300, plus an additional $100 reinstatement fee for late renewals. [10 CCR §1422.6.3]

Editor’s Note – Ready to renew your California mortgage license or endorsement? To visit to start.

Next week we will look at reporting under the CFL.