Written by Stephanie Ochoa*

About one year ago, I summarized in this article the requirements under the Secure and Fair Enforcement for Mortgage Licensing Act ("S.A.F.E. Act").  The S.A.F.E. Act was enacted under Title V of the Housing and Economic Recovery Act of 2008 (Public Law 110-289) ("HERA") and sets forth requirements for the licensing or registration of all loan originators by August, 2009 and the registration of mortgage loan originators by July, 2010.

Although most of us are doing our best to comply with the Federal S.A.F.E. Act as well as the individual "S.A.F.E. Acts" from all 49 states and the District of Columbia, we are finding some bumps along the way.  For example, questions abound over background checks (pre-employment and post-employment), fingerprinting requirements, pre-licensure education and continuing education, education provider compliance with existing and newly amended laws and regulations, HUD's proposed rule of December 2009, and the coming multi-state exams, among others.  

In my quest for truth and timely answers, I attended the Nationwide Mortgage Licensing System ("NMLS") User Conference in Rancho Bernardo, California in February, 2010, as did many other compliance professionals, lawyers, servicers, agency representatives, and various state regulators. (Yes, united we were in our quest for knowledge!)

The Conference agenda covered a broader range of issues than just the S.A.F.E. Act issues, including the following:

• The Conference of State Bank Supervisors ("CSBS") is working on a Best Practices document that focuses on criminal background check issues (referred to as "CBC" by the NMLS).
• A discussion of the new "Mortgage Education Testing Board" ("MTEB") created by the State Regulatory Registry ("S.R.R.") Board of Managers with a focus on the pre-licensure and continuing education issues on the state level.
• A Multi-Tiered Auditing function will be added, targeting the review and audit of existing course providers.  For example, an audit will be implemented to ensure that RESPA changes have been incorporated into existing course content from S.A.F.E.  Act course providers.
• The Department of Housing and Urban Development's ("HUD's") Proposed Rules, published December 15, 2009, were out for comment through March 5, 2010 - Conference participants are expecting HUD to release Final rules sometime after April 1, 2010.  During the Conference, concerns echoed regarding loan modifications, servicing personnel, and compliance with the loan originator requirements, as well as a number of others.
• Responsibility for Compliance:  Speakers at the Conference confirmed that it is the responsibility of lenders, banks and their subsidiaries to "ensure compliance".
• Felony convictions:  Discussion on the variance of requirements between mortgage loan originator ("MLO") and a registered MLO. An MLO is a state level licensee and a registered MLO is an employee of a federally regulated institution.  Under the S.A.F.E. Act, an MLO applicant is ineligible for licensing if they have had a felony conviction in the past seven years (for life if the conviction involved fraud, dishonesty, breach of trust, or money laundering).  However, under Section 19 of the Federal Deposit Insurance Act ("FDIA"), the felony conviction period is 10-years.
• Multi-State Exams through the NMLS:  It was mentioned that the intention was not to have "you die by 1,000 pin pricks," but instead to submit examination materials and complete the audit "once and for all."  Essentially and as currently created, any MLO desiring to continue or obtain licensing in multiple states must pass a specific state law exam in addition to the federal law exam.  Of course, the federal law exam need only be passed one time.  Other NMLS goals discussed at the Conference include data submission and ease of transmission of data, uniformity, and the continual improvement of processes.  Concerns echoed and raised at the Conference were regarding the submission of documents required by State X but not by State Y and if allowed to submit such documentation outside of the system.  (For example, Georgia has a state specific form (Mortgage Loan Originator Oath of Applicant) that may not be submitted through the NMLS, but must be transmitted directly to the Georgia Department of Banking and Finance).  Of note, you will be expected to be able to "talk" to the selected vendor's software by early 2011 regardless of which technology you decide to implement in your shop. 
• Credit reporting agencies now have an automated dispute system, nicknamed e-OSCAR, to receive claims of inaccuracies that get sent to those participating in the NMLS.  Concerns were raised about "minimum FICO credit scores".  These concerns are valid as states have the option of mandating a minimum credit score which was not a requirement of the S.A.F.E. Act.  One state mentioned a "gauge" of 600 with the goal of using the score to gauge past and long term financial responsibility, character and fitness.  Another state mentioned that a bankruptcy may not necessarily be grounds for automatic rejection of an applicant, but instead the regulators are looking at the whole picture, including life circumstances.
• "FIeldPrint" is the vendor selected as the company that can partner with you for processing Live Scan or traditional hard fingerprint cards.  While an applicant for an NMLS license is at a FieldPrint site, the applicant can get printed and call a number to verify that the prints are acceptable prior to leaving the location.  Concerns with this process pertain to employees that are unprintable and those that hold less than a specific percentage of ownership in an entity.  Two Live Scan submissions are required to be rejected before hard prints can be submitted, according to the Federal Bureau of Investigation ("FBI").  In the event hard prints are also rejected, the applicant can be subjected to a name-based search (which can be time consuming and involve resolving false positives).
• Consumers now have access to the NMLS information.

The discussions were lively but civil, and the participation level was quite high.  The spirit of all participants was one of mutual respect and cooperation in hopes of being able to comply with the dual level S.A.F.E. Acts processes (federal and state).  Keep hanging on.  It's still going to be a wild ride!

* Stephanie Ochoa is the President & CEO of My Compliance Alliance, LLC (http://www.mycompliancealliance.com/) based in Orange, California and may be reached at stephanie@mycompliancealliance.com.