According to the California Department of Financial Protection and Innovation, a finance lender is a person or entity involved in providing commercial or consumer loans worth over $500. The loans they offer can be secured (requiring collateral) or unsecured (no collateral).
Mortgage brokers, also referred to as finance brokers, serve as middlemen for borrowers and lenders. They usually work with a variety of lenders. Because of this, they can help borrowers secure the most suitable loan terms for their needs.
Additionally, you will often hear the term mortgage loan originator, or MLO. MLOs are professionals who work for a single lender. Like mortgage brokers, they help people secure loans from the lender they’re working for. Since they have different California licensing requirements, we won’t talk about them in detail here.
The California Financing Law (CFL) governs all finance lenders and mortgage brokers in the state. The main purpose of this state law is to protect consumers from discriminatory or fraudulent business practices. It also establishes and ensures compliance with the necessary licensing requirements for California-based mortgage brokers.
Under the CFL, finance lenders and mortgage brokers in California should have a license from the California Department of Business Oversight (DBO) With the license, they also need to meet other requirements, such as giving consumer disclosures and having a surety bond.
If you have questions or concerns about any business practices or licensing requirements, you can access the complete CFL document here.
To do business in California, finance lenders, mortgage brokers, and loan originators should have a license. Both finance lenders and mortgage brokers require the California Financing Law License. On the other hand, mortgage loan originators need a separate license from the California Department of Financial Protection and Innovation.
Entities or individuals involved in finance lending or mortgage brokering—as defined earlier—must hold a CA Financing Law License. This requirement applies to those who are issuing or negotiating commercial and consumer loans. This also applies to those involved in negotiating terms or other broker-related activities in relation to loans provided by finance lenders.
However, there are instances where this requirement isn’t applicable.
For instance, if people are already licensed by a different regulatory agency, they don’t need to get a separate CA Financing Law License. Another example is when people or businesses perform “non-loan transactions,” such as automobile sales finance contracts, bona fide leases, and retail installment sales contracts.
If you want to know more about these exceptions, read this.
Fortunately, it’s not entirely difficult to become a licensed finance lender or mortgage broker in California. The primary hurdle is preparing your application, which can be time-consuming, but knowing the process can help!
Below is a four-step guide to becoming a licensed finance lender or mortgage broker in California:
You don’t need a formal education or previous experience to apply for a California Finance Lender License. However, you do need to meet certain preliminary requirements, such as the following:
After confirming you meet the initial requirements for licensure, your next step is to gather the following additional documents:
Do you still have questions? Check out this checklist to get more information about the necessary documents listed above.
The California Finance Lender Bond is known by different names, including finance broker bond, loan originator license bond, mortgage broker license bond, and mortgage broker bond. Whatever name it goes by, the fact remains that all California finance lenders and mortgage brokers need one as part of the licensing requirement.
A finance lender bond is a type of surety bond, more specifically, a license and permit bond. The California Finance Lender Bond is for people or businesses that want to secure a California Financing Law License.
This bond serves the following purposes:
Unlike insurance, a finance lender surety bond doesn’t protect the finance lender or mortgage broker. Instead, it protects their clients.
For instance, suppose a client suffers a financial loss because of the wrongdoing of a finance lender or their staff. The injured party can recover damages through the lender’s bond by initiating a claim against the bond.
After verification, the surety will reimburse the claimant up to the bond’s limit. However, the finance lender or mortgage broker is responsible for compensating the surety company for the costs of disbursements, as well as extra costs and fees incurred by the surety.
The bond amount of a mortgage broker, mortgage lender, or mortgage lender and broker bond is typically determined by the dollar value of loans issued in the previous year. We’ve outlined this below.
For other finance lenders, brokers, and program administrators (responsible for managing brokering or lending programs), they only need to purchase a $25,000 surety bond. This bond must be issued by a company that’s legally licensed to operate in California.
Keep in mind that you don’t need to pay the full bond amount all at once. The cost of your bond depends on a variety of factors, such as your industry experience, the required bond amount, and most importantly, your credit score.
An optimal applicant with an excellent credit score and sufficient finances may find annual premiums for as little as 1% of their required bond amount. But if you want to know the exact cost of your bond, it’s a great idea to contact BOSS Bonds today to get your free quote.
Finally, you can submit your California Financing Law License application after you’ve paid for your surety bond and gathered the required documents (e.g., fingerprints and a background check).
For those seeking a Financing Law License, the California Department of Business Oversight (DBO) requires them to send their applications to the Nationwide Multistate Licensing System (NMLS).
The application process consists of two main forms:
You can also submit your requirements by mail to the DBO. However, they should arrive within five days after submitting your application online. In most cases, your surety company takes care of electronically filing finance lender bonds or mortgage broker bonds with the NMLS on your behalf.
As of 2022, these are the license fees you need to pay to process your application:
Do you still have concerns about licensing fees or need assistance with your application? Get in touch with the California Department of Business Oversight.
We think it’s safe to say that you already probably have a good idea of how to get a license as a finance lender and mortgage broker in California. Now, let’s take it one step further to get you bonded by completing our brief online application. Don’t worry, it’s free, and the credit check is a soft inquiry, so it won’t hurt your score.
If you ever need assistance with the bonding process, feel free to call us at 800-361-1720.