Do Private Money Brokers Need the MLO License Endorsement?

Published: October 23, 2026

The mortgage loan originator (MLO) license endorsement is required when originating one- to four-unit residential mortgage loans where the loan is primarily for personal, family, or household use (Business and Professions Code section 10166.01 et seq.). The loan may be secured by a senior lien or junior lien and may be a purchase loan, refinance, home equity line of credit, or reverse mortgage. In addition, a loan on or for a second home, vacation home, or land purchased for the construction of a residential dwelling may require an approved MLO license endorsement. Furthermore, the source of funds is irrelevant when determining when an MLO license endorsement is required; i.e., an MLO license endorsement could be required for a residential loan if the lender is a private person.

However, if a loan is primarily for commercial purposes or is secured by a five-plus unit residential property or commercial property, then the MLO license endorsement is not required.

Oftentimes, private money brokers—also known as hard money brokers—defend that if the loan is secured by a rental property or is non-owner -occupied, it automatically becomes a commercial loan and the MLO license endorsement is not needed to originate the transaction; however, that is not necessarily true. It is important to review the definition of a residential mortgage loan for purposes of MLO licensure. Let’s review the following scenario with regard to a private money transaction:

A borrower wishes to refinance their residential, one-unit rental property and draw out cash. Those funds will be used to pay property taxes on his primary residence. The lender is a private person. Does the private money broker arranging the transaction need the MLO license endorsement?

YES. The MLO license endorsement is needed because the funds from the loan are for personal, family, or household purposes—specifically, the property tax bill on the borrower’s primary residence—and the loan is secured by a residential, one- to four-unit property. The owner occupancy and source of funds have no bearing on whether or not the MLO is needed.

More recently, some private money brokers who do not have the MLO license endorsement and claim that they only do commercial loans have attempted to originate loans that have been “restructured.” These private money brokers had originated loans that clearly required an approved MLO license endorsement, but the brokers, knowing they did not possess the appropriate licensure, had convinced borrowers to restructure the loan so that the borrowers’ fictitious business entities or LLCs appeared to be the borrowers. A private money broker who is attempting to circumvent the SAFE Act and MLO licensing laws through misrepresentation, fraud, or dishonest dealing is subject to license discipline.

It is up to the real estate licensee to vet a borrower to determine the purpose of the loan so the licensee is compliant with the MLO licensing requirements and, as a fiduciary, ensure that the loan transaction meets the interests of the borrower.

For further reference, see Article 2.1 of the California Business and Professions Code, beginning with section 10166.01; visit the Department’s website at www.dre.ca.gov; or call the Mortgage Loan Activities unit at (877) 373-4542.