We have been dealing with the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) since 2010. Still, questions surface or confusion exists over SAFE Act requirements.
- “A loan clerk quotes loan rates from a non-public rate schedule, along with payment amounts for inquiring consumers. Should she be registered?” (Maybe, she is performing a function of a mortgage loan originator, MLO.)
- “Our head of lending is our SAFE Act Officer. He also handles some mortgage loans, with his name on loan documents. However, his background is in commercial lending, and he has never registered with the NMLSR. Do we have a problem?” (Yes, if he is involved in more than five mortgage loans per year, he must be registered.)
- “How often do we have to get criminal background checks for our MLOs? How about when their fingerprints expire?” (Criminal background checks are required only on initial registration. The fingerprint expiration date is only relevant for existing MLOs coming into the bank as new employees. No updating of fingerprints for ongoing MLOs is required.)
These queries reveal that confusion still exists over the requirements and how they impact banks and thrifts.
A little background
Congress enacted the SAFE Act in July 2008 to require states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators and provide for the establishment of a nationwide mortgage licensing system and registry for the residential mortgage industry.
The SAFE Act required all states provide a licensing and registration regime for mortgage loan originators not employed by federal agency-regulated institutions within one year of enactment (or two years for states whose legislatures meet biennially).
In addition, the SAFE Act required the federal banking agencies, through the Federal Financial Institutions Examination Council (FFIEC) and the Farm Credit Administration (FCA) develop and maintain a system for registering mortgage loan originators employed by agency-regulated institutions.
The Dodd-Frank Act moved responsibility for the SAFE Act rules to the Consumer Financial Protection Bureau (CFPB), which rolled these rules into Regulation G (12 CFR 1007).
Licensing vs. registration
Most of the confusion at the outset seemed to center on licensing versus registration of mortgage loan originators (MLOs). The issue is deceptively simple.
- MLOs that work for federally supervised banks, thrifts and credit unions (and FCA lenders) must register with the national registry (NMLSR).
- MLOs employed by other mortgage lenders (mortgage companies, etc.) must navigate the state licensing and registry system, a much more time-consuming, expensive, and burdensome process that also carries a continuing education requirement.
Coverage
A “mortgage loan originator” is an individual who both takes residential mortgage loan applications and offers or negotiates the terms of a residential mortgage loan for compensation or gain.
The term “mortgage loan originator” does not include individuals who perform purely “administrative or clerical tasks” (the receipt, collection, and distribution of information standard for the processing or underwriting of a loan in the mortgage industry). Nor does a “mortgage loan originator” obtain the information necessary to process or underwrite a residential mortgage loan. Also excluded are individuals who perform only real estate brokerage activities. These are duly licensed individuals or entities solely involved in extensions of credit related to timeshare plans, employees engaged in loan modifications or assumptions, and employees involved in mortgage loan servicing.
“Compensation or gain” includes salaries, commissions or other incentives, or any combination of these types of payments.
The final rule, as required by the SAFE Act, prohibits an individual who is an employee of an agency-regulated institution from engaging in the business of a loan originator without registering as a loan originator with the national registry, maintaining that registration annually, and obtaining a unique identifier through the registry.
MLO registration
An MLO must be federally registered if the individual is: 1) an employee of a depository institution; 2) an employee of any subsidiary owned and controlled by a depository institution and regulated by a federal banking agency: or 3) an institution regulated by the FCA.
The final rule, as required by the SAFE Act, prohibits an individual who is an employee of an agency-regulated institution from engaging in the business of a loan originator without registering as a loan originator with the national registry, maintaining that registration annually, and obtaining a unique identifier through the registry. Employer financial institutions must require adherence to this rule by their employee MLOs.
MLOs may submit their registration information individually, or their employer institution may do it for them (by a non-MLO employee). Management should decide which approach will ensure consistency within the institution, especially since prescribed institution information must be submitted to the registry.
This MLO information must include financial services-related employment history for the 10 years before the date of registration or renewal, including the date the employee became an employee of the bank – not just the time they have worked for their current employer.
Employers of MLOs must remember to renew registrations annually for as long as an individual operates as an MLO. The renewal period opens November 1 and ends December 31 each year. If an MLO or bank registration lapses, it may be reinstated during a reinstatement period that begins January 2 and closes February 28 each year.
Other requirements
Bank and thrift managers also should remember that there are specific requirements in this rule for the institution to have policies and procedures to implement SAFE Act requirements and the use of a unique identifier (NMLS number) by MLOs.
At a minimum, the bank’s SAFE Act policies and procedures must:
- Establish a process for identifying which employees have to be registered MLOs
- Inform all MLOs of SAFE Act registration requirements and instruct how to comply with those requirements and procedures
- Establish procedures to comply with the unique identifier requirements
- Establish reasonable procedures for confirming the adequacy and accuracy of employee registrations, including updates and renewals, by comparisons with its records
- Establish reasonable procedures and tracking systems for monitoring compliance with registration and renewal requirements and procedures
- Provide independent testing for compliance with this part conducted at least annually by covered financial institution personnel or by an outside party
- Provide for appropriate action in the case of any employee who fails to comply with SAFE Act registration requirements or the bank’s related policies and procedures, including prohibiting such employees from acting as MLOs or other appropriate disciplinary action
- Establish a process for reviewing SAFE Act employee criminal history background reports, taking appropriate action consistent with applicable federal law, and maintaining records of these reports and actions taken concerning relevant employees, and
- Establish procedures designed to ensure that any third party with which the bank has arrangements related to mortgage loan origination has policies and procedures to comply with the SAFE Act, including appropriate licensing and registration of individuals acting as MLOs
The bank or thrift also must make the unique identifiers (NMLS numbers) of its registered MLOs available to consumers “in a manner and method practicable to the institution.” The bank has the latitude to implement this requirement. It may choose to make the identifiers available in one or more of the following ways:
- Directing consumers to a listing of registered MLOs and their unique identifiers on its website
- Posting this information prominently in a publicly accessible place, such as a branch office lobby or lending office reception area, and
- Establishing a process to ensure that bank personnel provide the unique identifier of a registered MLO to consumers who request it from employees other than the MLO
In addition, a registered MLO must provide his or her unique identifier to a consumer:
- Upon request
- Before acting as a mortgage loan originator, and
- Through the MLO’s initial written communication with a consumer, if any, whether on paper or electronically (often by incorporating it into the signature information for standard letter and email formats)
Banks, thrifts, and their registered MLOs often also make their NMLS numbers available in other ways – such as including them in advertising or on business cards.
As with any compliance rule, banks and thrifts need to ensure they have systems in place to maintain compliance with SAFE Act requirements, including appropriate training for employees involved in the mortgage origination process.
William J. Showalter, CRCM, CRP, is a Senior Consultant with Young & Associates, Inc.
(younginc.com), with over 35 years of experience in compliance consulting, advising and assisting financial institutions on consumer compliance and compliance management issues. He has authored or co-authored numerous compliance publications and articles and developed and conducted compliance training programs for individual banks and their trade associations. Bill can be reached at (330) 678-0524 or wshowalter@younginc.com.
