Written by Stephanie Ochoa*
If you are in compliance and/or licensing in the mortgage lending world, there's no doubt that you have heard of yet another acronym - the S.A.F.E. Act. The Secure and Fair Enforcement for Mortgage Licensing Act of 2008, technically Title V of the Housing and Economic Recovery Act of 2008 (Public Law 110-289) ("HERA"), sets forth requirements for the licensing and registration of all loan originators by August 1, 2009.
While there are various facets and requirements under the S.A.F.E. Act, the bulk of this discussion will focus on the loan originator requirements. Let's begin with purpose.
According to a summary published by the Conference of State Bank Supervisors (CSBS), Section 1502 identifies the "Purposes and methods for establishing a mortgage licensing system and registry." This section identifies the need for the establishment of a national licensing system "to act in the best interests of the consumer to the greatest extent possible." Additionally, the system identifies the need for the "collection and distribution of consumer complaints to both the state and federal regulators." Under current practice, the regulators across the 50 states found it challenging to share and/or find information on bad actors when complaints were filed. This new licensing system provides an avenue for the sharing of such information and reduces the regulatory burden, as well.
In terms of requirements, Section 1504 provides that any "loan originator" (meeting the definition of that term under the S.A.F.E. Act) must be registered as a registered loan originator if the originator is an employee of an insured depository or one of its subsidiaries If conducting business as a loan originator for an entity licensed by a state, then the individual must obtain a license and a registration as a State-licensed originator. Under either licensing scheme, the loan originator must also obtain a unique identifier number through the National Mortgage Licensing System & Registry (NMLSR). If a state doesn't have the capability to comply with these requirements by the designated timeframe, then that state will be required to comply with minimum standards that are to be established by the Department of Housing and Urban Development ("HUD").
There are other applicable specifications and timelines, but here is a summary of the requirements for individuals at the State level:
- States are required to have an active and performing licensing system functioning by August 1, 2009 and license the loan originators through the NMLSR
- Minimum standards set for in the SAFE Act include but are not limited to:
- Criminal history background check
- Individual credit check
- Initial education prior to licensure
- Initial examination requirement prior to licensure
- Continuing education requirement
- Individual net worth requirement
- Individual surety bond (the fees vary but normally range about 1%-2% of the bond amount)
Although the majority of the requirements appear to reflect what is the "norm" in many of the 30+ states that have loan originator licensing requirements, the individual net worth and surety bond requirements are less common and will bring novel compliance tribulations in most States.
Keep in mind that the "minimum standards" are just that - "minimum standards". This means that the states may opt to enhance the standards which could create additional requirements. In fact, there are roughly 27 states with at least one piece of pending legislation addressing the implementation of the S.A.F.E. Act requirements. Many of these pending bills, if passed in their current form, would subject individuals to more requirements.
There is no doubt that having a national licensing system will provide benefits to the multitude of industry participants while producing some growing pains along the way. There is also no doubt that smaller companies may have challenges with attempting to comply with the S.A.F.E. Act with their reduced staff. Furthermore, although the national licensing system required by the S.A.F.E. Act will be frought with rapidly changing issues, one thing is for sure - a national licensing system is here to stay. Hang on! It's going to be a wild ride.
This article is not intended as legal advice and is merely for informational purposes only.
Exceptions to the deadline date apply based on the timing of state legislative sessions and a few other specified factors.
Stephanie Ochoa is the Owner of Ochoa and Associates (http://www.ochoaandassociates.com/) based in Orange County, California and may be reached at sochoa@ochoaandassociates.com.
* Any opinions expressed in the above article are to be construed as the author's opinion only and do not necessarily reflect those of DocMagic, Inc., including members of its Compliance Department.
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