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   ARTICLE   |   From Scotsman Guide Residential Edition   |   August 2009

Catching Up with New Licensing Rules

Brokers must know what the S.A.F.E. Act requires and comply -- possibly, by Aug. 1

To stay in business in today's lending environment, mortgage brokers must meet new state- licensing or -registration requirements.

As a part of the Housing and Economic Recovery Act of 2008, the Secure and Fair Enforcement for Mortgage Licensing Act -- aka, the S.A.F.E. Mortgage Licensing Act or S.A.F.E. Act -- mandates that all states have a loan-originator licensing-and-registration system in place by Aug. 1 -- or by Aug. 1, 2010, for states with legislatures that meet every two years.

If a state fails to enact legislation to meet the act's federally mandated minimums, the U.S. Department of Housing and Urban Development will implement a licensing system for it.

As part of the fallout following the collapse of the subprime (aka, nonprime) lending industry and housing market -- along with the alarming increase in foreclosures nationwide -- the federal government felt the need to improve consumer protection by implementing uniform, nationwide licensing standards and creating a nationwide database to identify and track loan originators and mortgage brokers.

Under the S.A.F.E. Act, the focus is on loan originators regardless of whether they work for a broker, lender, bank or credit union. Loan originators who don't work for a federally regulated depository institution or subsidiary thereof will need to obtain a state license and register as a state-licensed loan originator. Originators who work for depository institutions won't need a license and will be entered in the loan-originator registry by their employers.

Regardless of where they work, all originators must obtain a permanent identifier. That identifier will allow for the electronic tracking and uniform identification of loan originators and all loans they originate.

The S.A.F.E. Act defines a loan originator as any individual who takes a residential mortgage application; who assists consumers in obtaining or applying to obtain residential mortgage loans; or who offers and negotiates terms of residential mortgage loans. The act's minimum standards for mortgage brokers and loan originators not working for a federally regulated depository institution or subsidiary include, but are not limited to:

  • Criminal-background checks;
  • Individual credit checks;
  • Prelicensure education of at least 20 hours;
  • Prelicensure examination with a passing score of 75 percent or better;
  • Annual continuing education of at least eight hours;
  • Individual net-worth requirements; and
  • Individual surety bonds.

Additionally, to obtain a license or to be registered, loan originators must:

  • Not have had a loan-originator license revoked from any jurisdiction;
  • Not have any felonies within seven years of the application date;
  • Have no felonies related to fraud, dishonesty, breach of trust or money laundering; and
  • Demonstrate financial responsibility and good character to ensure an ability to operate honestly, fairly and efficiently.

Meanwhile, loan originators who work for depository institutions or their subsidiaries will at a minimum need to register with the Nationwide Mortgage Licensing System and Registry (NMLS) and receive a unique identifier. They will need to provide fingerprints to the NMLS for submission to the FBI to conduct a background check. These loan originators also must provide personal history and experience to the NMLS along with authorization to obtain any administrative, civil or criminal findings.

As of press time, federal financial-regulatory institutions still were developing the final rules for loan originators employed by depository institutions. The deadline for public comment on the rules was set for this past July 9.

States must enact legislation that complies with the S.A.F.E. Act by Aug. 1 of this year or August 2010, depending on their legislative schedule. Each state must include minimum standards in its licensing legislation. There is nothing that prohibits states from creating more-restrictive requirements, as well.

As of late June, 38 states had passed or enacted the required legislation, according to the S.A.F.E. Act tracking document published by the Conference of State Bank Supervisors.

If a state already has an existing licensing law, it can have more time to bring already-licensed originators into compliance with the new law. Loan originators licensed before this past July 31 under a state law that had been enacted before July 31, 2008, have until Jan. 1, 2011, to comply with the act's provisions, depending on the state in which they live.

Loan originators who weren't licensed as of this past July 31 must comply with the S.A.F.E. Act's provisions no later than this coming July 31.


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