A large-scale investigation into continuing education for mortgage lenders has resulted in fines levied against more than 400 originators nationwide, alleging that they dishonestly claimed fulfillment of annual licensure requirements.
The probe, which began in December 2020 and spanned 42 states and 44 state financial agencies, was spearheaded by the California Department of Financial Protection and Innovation (DFPI). Per details of the investigation, implicated originators allegedly did not complete their yearly continuing education credits, a requirement through the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act to help protect consumers.
The SAFE Act, while varying state by state, mandates that loan officers complete eight hours of education each year, in addition to 20 hours of education prior to being licensed. After verification software discovered that hundreds of originators did not take these courses, a multistate task force led by the California DFPI was formed.
Each of the 608 originators incriminated in the investigation were found to have paid for such education through Real Estate Educational Systems (REES), a nationally licensed continuing education provider owned by Danny Yen and based in Carlsbad, California.
Investigators claim that, in exchange for payment, Yen falsely gave loan officers class credit or, in some cases, took the classes on behalf of the originators through other providers. Thus far, 441 originators have signed settlements with their respective regulatory agencies and will now pay, on average, roughly $2,700 each. (Originators were ordered to pay $1,000 for each state where they are licensed to operate.) Collectively, these fines totaled some $1.2 million.
Additionally, these loan officers will be forced to surrender their licenses, triggering a three-month “cooling-off period.” According to the Conference of State Bank Supervisors (CSBS), this period does not constitute a “suspension,” per se, but according to the terms of the settlement, originators who surrendered their licenses can neither do business nor immediately reapply for a license during the three-month cool-off. They will be required to retake the 20 hours of pre-licensure education and eight hours of continuing education prior to petitioning or reapplying for a mortgage loan officer endorsement or license.
Loan officers who were implicated in the investigation but did not sign settlements will be referred to their state financial regulators for further potential disciplinary action against their licenses. According to CSBS, disciplinary actions have already been launched against 14 such originators, with additional discipline expected to be filed in the coming months.
“Mortgage loan originators are responsible for guiding consumers through the single largest financial transaction in their lifetime,” said Clothilde V. Hewlett, commissioner of the California DFPI. “California will continue to lead on efforts that protect consumers and ensure fairness and resilience in our markets. I am proud of the department and the historic 44 state-agency effort that, with these actions, remind the mortgage industry of their obligations to be ethical, honest and forthright.”
Per the CSBS, any loans that have already been originated by the loan officers involved in the scandal are valid loans. As for the loan applications currently being processed while the originators are prohibited from working, that’s a more complicated story.
“Each loan application in process presents a unique set of circumstances,” according to a background document distributed by the CSBS. “The Multistate Investigation Taskforce recommends that the [mortgage company] contact the appropriate state regulator based on the location of the property associated with the mortgage loan.”
The mortgage companies that employ these originators were not implicated, and the agencies do not intend to pursue enforcement against any of the companies’ licenses at this time. Yen, however, is facing discipline as state agencies in California, Maryland and Oregon are pursuing administrative action against him, members of his family and REES.
