Each state must meet the state-license and registration-application and -issuance requirements, standards for state-license renewal, and state-licensing-law requirements. States also must participate in the nationwide mortgage-licensing system and registry.

If the HUD secretary determines that a given state does not have an adequate system in place, it shall provide for the establishment and maintenance of an adequate system.

The HUD secretary is granted similar authority if it determines at any time that the nationwide mortgage-licensing system and registry fails to meet the act's requirements and purposes.

In addition to the above provisions, the act limits the liability of the nationwide mortgage-licensing system and registry's administrators. It also vests authority in HUD's secretary for summons, examinations, cease-and-desist proceedings and reviews, as well as monetary penalties for violations or failures to comply with the act's requirements. The maximum penalty for each act or omission is $25,000.

The HUD secretary also must provide annual reports to Congress about the act's effectiveness, must make legislative recommendations, and must conduct an extensive study regarding the root causes of default and foreclosure. The act calls for a preliminary report six months after enactment and a final report this coming July.

What to expect

The amount of responsibility loan originators should bear for the mortgage crisis is unclear, and it will take years to determine whether the S.A.F.E. Mortgage Licensing Act is an effective solution. Some of the act's components will be difficult to implement, and confusion likely is inevitable -- particularly for brokers who operate in multiple states in which different licensing thresholds are established.

For example, one state may interpret license revocation differently than another. A license can be revoked for many reasons, including nonpayment of a licensing fee.

Most often, failing to pay a licensing fee because you've moved to another state shouldn't prevent individuals from getting a license to originate loans in their new state.

Likewise, how will the state regulators interpret and implement the requirement that individuals "demonstrate financial responsibility, good character and general fitness such that they can obtain a license? How high will the bar be set?

The federal government must take a strong position in guiding the states in establishment of well-defined standards to avoid the regulatory patchwork with which the industry must now contend.

In the meantime, each state will develop its own set of comprehensive rules and regulations. Likely, questions will arise regarding exactly who is covered by the act, as well as about its enforcement and application in individual cases.

Regardless, there are benefits to a national licensing system. It will:

• Hold members of the mortgage industry to a higher standard of professionalism;
• Discourage participation by those who are unable or unwilling to comply with the act's licensing and good-character requirements; and
• Provide consumers with the information necessary to make informed decisions with respect to those who represent them.

It also will prevent those few unscrupulous brokers from picking up and moving from state to state, trying to stay a step ahead of state regulators.

Most important, the national licensing system is a first step in the establishment of a uniform national regulatory scheme for mortgage brokers that will replace the patchwork quilt of state regulations that have plagued the industry.

Douglas L. Davies is a partner with Foster Pepper PLLC (www.foster.com). He represents mortgage lenders and brokers in litigation and regulatory-compliance matters throughout the nation and is interviewed and quoted frequently on mortgage-industry issues by Reuters, Moneyline, The Washington Post and the New York Herald Tribune, among others. Laura Marquez-Garrett is an attorney with Foster Pepper and works on mortgage-industry matters. She graduated from Harvard Law School. E-mail Davies at david@foster.com and Marquez-Garrett at marql@foster.com.

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