The Tao of TAO
December 14, 2019
I’m going to kick off this inaugural edition with some thoughts about Temporary Authority to Operate (“TAO”). Again, my plan with this missive is to be brief, with just some quick pithy thoughts. If you want or need a summary of TAO, check out the MBA’s Temporary Authority Resource publication written by two TAO “masters”.
Temporary (or transitional) authority hit the ground running on November 24, right in the middle of NMLS reporting deadlines: not exactly the best time to implement new procedures for licensing LO’s. TAO is a very good thing for the industry to enable LO movement and cross-state origination, but like all other mortgage regulatory rules, it comes with a big dose of caveats and is not as simple as it sounds (still, these regulations are putting my kids through college, so I try not to bite the hand that feeds too hard).
TAO Take #1-Surely, Don’t Call it Temporary Licensing!
First of all, whatever you do, don’t call it “temporary or transitional licensing” anything. If a state regulator hears you call it that, they will immediately commence an on-site examination of your company for compliance management program weaknesses. OK, maybe that’s an overstatement. But, they really, really don’t like you using the term licensing when it comes to TAO because, well, semantics…., and state sovereignty rights or something. Anyway, don’t test it. There’s no “L” in TAO.
TAO Take #2-The 80/20 Rule
I’m pretty sure TAO temporary whatever will prove to be another example of the 80/20 Rule (a/k/a The Pareto principal) operating in the mortgage business. Everyone knows 20% of your originators produce 80% of the volume. Conversely, TAO is likely to work like a charm for about 80% of originators who can follow your compliance/licensing team instructions and who breeze through the background checks and testing. The team, however, will be challenged by the 20% who don’t follow the instructions, can’t pass the test, or who have some skeletons in their closet. I’m not going to go into the details (see that MBA Guide for that), but those details and time frames are very important, so make sure any (formerly registered) bank originators and internal originators looking to get licensed in another state have their ducks in a row when the compliance staff asks for it.
That said, you probably need to tell the 80% (of originators who originate 20% of your production) TAO isn’t available so they can just do one (heavily discounted) loan in North Dakota for a second cousin. Besides, I’ll bet that LO called it “temporary licensing” when they asked about it.