Overview Show The final rules to implement the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the "Act") were issued through the joint action of six federal agencies on July 28, 20101. The Act mandates that the agencies establish a registration system for residential mortgage loan originators who are employees of federally regulated institutions. The stated purpose of the Act is to enhance consumer protection and reduce fraud in the mortgage loan industry by registering mortgage loan originators and maintaining certain information about them in a new Nationwide Mortgage Licensing System and Registry (the "Registry"). The Registry will be administered by the Conference of State Bank Examiners and the American Association of Residential Mortgage Regulators. However, the Registry will not screen or approve registrations received from mortgage loan originators. Therefore, each covered financial institution must establish policies and procedures to ensure compliance with the Registry's requirements. This article reviews the scope of the Act and the new regulations, including which financial institutions, employees and financial instruments are covered by the rules, and the registration requirements to which the institutions and individuals must adhere. The concluding section sets forth several suggestions for institutions to consider when preparing to implement the new rules. Covered Institutions The rules are effectively identical for all "agency-regulated institutions" with functional regulation as follows:
It is important to note that the rules do not cover bank or savings association holding companies or their non-depository subsidiaries. Employees of those entities must comply with the licensing and registration requirements of the various states. Covered Employees The rules define a mortgage loan originator as an individual who takes a residential loan application and offers or negotiates the terms of the application for compensation or gain. The definition excludes (i) individuals who perform solely administrative or clerical tasks on behalf of a mortgage loan originator; (ii) individuals who perform solely as real estate brokers and are licensed or registered under applicable state laws, unless the individual is compensated by a lender, mortgage broker, or mortgage loan originator, or an agent for any of the foregoing; or (iii) an individual or entity solely involved in extensions of credit related to timeshare plans. A de minimis exception also exists for any individual who has never been registered or licensed as a mortgage loan originator and who, during the past 12 months, did not act as a mortgage loan originator for more than five residential mortgage loans. However, two significant caveats apply to this exception (e.g. originating a sixth loan in 12 months). First, the individual must register before engaging in a transaction that exceeds the exception limit. Second, a covered institution is prohibited from engaging in any practice that could be viewed as attempting to evade the limits of the de minimis exception. Residential Mortgage Loans A residential mortgage loan is broadly defined to include any loan primarily intended for personal, family or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest. The rules specifically include refinancing, reverse mortgages, home equity lines of credit (HELOC) and other first and additional lien loans. The definition includes loans that may not typically be considered mortgage loans, including loans made by individuals who are not thought of as mortgage loan originators. For instance, the rules cover HELOC and home improvement loans that may originate from the installment lending or other area of an institution as opposed to a mortgage loan subsidiary or department. Likewise, taking a junior lien on a residence as additional collateral for other personal loans, such as credit card, may be covered as residential mortgage loans if they otherwise meet the definition. And the employees making the loans may qualify as mortgage loan originators, which could subject them to the registration requirements if they exceed the de minimis standard. Registration Requirements Mortgage loan originators of covered institutions must obtain a unique identifier, register with the Registry and maintain that registration. The unique identifier permanently identifies each loan originator and facilitates tracking information related to their employment history and any disciplinary or enforcement activity initiated against them. The information will be maintained and publicly available through the Registry. Covered financial institutions must adopt policies to require that employed mortgage loan originators obtain the unique identifier, register, and maintain the registration with the Registry pursuant to the annual registration requirements. Required Employee Information Covered institutions must require each employee to submit, or submit on their behalf, the following information:
The registration or renewal must include the employee's authorization to obtain the required background information and their attestation to the accuracy of any information they submit either to the Registry or the institution to satisfy the rules. The employee must also authorize the Registry to make certain information available to the public. Although the employee's information may be submitted by the employee or the institution on behalf of the employee, the issue is somewhat academic given that the institutions are required to establish procedures to insure the accuracy of the information provided. The institution must designate employees who will be responsible for submitting the required information and who cannot themselves be mortgage loan originators. Required Institution Information Institutions employing mortgage loan originators are required to submit the following information to the Registry:
The individuals authorized to act on behalf of the institution and submit employee information must also attest to their identity, authorization and accuracy of the submitted information. Information submitted to the Registry must be updated within 30 days of any changes, including if the mortgage loan originator ceases to be an employee of the institution. All institution information must also be renewed annually. Required Policy and Procedures Institutions that employ one or more mortgage loan originators must adopt written policies and procedures designed to assure compliance with the rules. The policies and procedures must be appropriate to the size, nature, scope and complexity of the institution's mortgage lending activities. At a minimum the policies and procedures must:
Use of Unique Identifier Institutions must make each mortgage loan originator's unique identifier available to consumers in a practicable manner. A registered mortgage loan originator is required to provide their unique identifier to a consumer upon request, before acting as a mortgage loan originator, and through the initial written communication with the consumer, whether on paper or electronically. Effective Date and Implementation Period The rules go into effect on October 1, 2010. There is a 180-day implementation period which will commence on the date that the agencies provide public notice that the Registry is accepting initial applications. What This Means To You The Act and rule require an entirely new compliance function for your institution and compliance personnel. Here are some suggestions:
Husch Blackwell's team of experienced counselors is available to assist you in navigating through all of these new compliance requirements. We continue to follow developments in this area of the law and we are available to discuss these issues at your convenience. 1The six agencies (the "Agencies") include the Office of the Comptroller of Currency (OCC); Board of Governors of the Federal Reserve System (FRB); Federal Deposit Insurance Corporation (FDIC); Office of Thrift Supervision (OTS); Farm Credit Administration (FCA); and National Credit Union Administration (NCUA). Contact Info For additional information concerning this or any other issues involving financial institutions and their regulation, please contact your Husch Blackwell attorney. Husch Blackwell LLP regularly publishes updates on industry trends and new developments in the law for our clients and friends. Please contact us if you would like to receive updates and newsletters, or request a printed copy. Husch Blackwell encourages you to reprint this material. Please include the statement, "Reprinted with permission from Husch Blackwell, copyright 2010, www.huschblackwell.com." at the end of any reprints. Please also email to tell us of your reprint. This information is intended only to provide general information in summary form on legal and business topics of the day. The contents hereof do not constitute legal advice and should not be relied on as such. Specific legal advice should be sought in particular matters. What entity has federal ruleOn July 21, 2011, Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) transferred rule-making authority for the SAFE Act from the Agencies to the Consumer Financial Protection Bureau (CFPB).
When was the SAFE Act implemented?The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) was enacted on July 30, 2008, and mandates a nationwide licensing and registration system for residential mortgage loan originators (MLOs).
What is the objective of the SAFE Act?The SAFE Act essentially has two primary goals: establish common requirements for the licensing or registration of mortgage loan originators; and develop a standard platform and methodology that allows regulators and consumers to more easily track loan originator credentials, history, and performance.
What was implemented by the SAFE Act?The SAFE Act established federal registration requirements for an individual who acts as a residential mortgage loan originator (MLO) and is employed by an institution that is regulated by the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency (OCC), the Federal Deposit ...
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