|Bear has made good points (see below).|
Obviously, you don't have to be a Notary Public to take loan applications - nothing to notarize. In this particular case it is an in-state mortgage lender (not a bank) that apparently used more than one unlicensed person or a period of time. Without knowing all the facts, my GUESS is that at least one borrower was unhappy, complained to CT Consumer Protection, and then the ball started rolling downhill fast.
As you picked up - collect exactly what's on the list from the lender, point where to sign, and leave. The line comes being "nice and helpful," don't offer helpful suggestions on which documents or what the lender is asking for - or "yes, you can include that document, too." For instance, for those holding real estate licenses, you know exactly where the line is that your license covers and what would anger you and the State when an unlicensed person in a real estate office (such as a new or temp secretary) starts "helping out by giving out information and advice" to a potential client or sharing too much about your listing with a broker from another agency.
My GUESS is this problem may have also been discovered when other lenders, using trained, licensed people discovered a competitor was doing this; i.e., lower costs to borrower because costs were less (hmmm ... what does a licensed person get paid vs. a non-licensed person, who may not even realize s/he needs a license for what s/he is doing).
Can't answer all your questions because the specifics have not been released to the public and aren't easily accessible.