The SAFE Mortgage Licensing Act: Nationwide Loan Originator Licensing and Registration Requirements

By: Rachel M. Wolf

The Housing and Economic Recovery Act, designed primarily to address the so-called subprime mortgage crisis, was signed into law on July 30, 2008.  The law includes the SAFE Mortgage Licensing Act, also entitled the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “Safe Act”).  The Safe Act requires all residential “mortgage loan originators” to be either licensed or registered.  A “mortgage loan originator” is defined under the Safe Act as any individual who “takes a residential mortgage loan application; or offers or negotiates terms of a residential mortgage loan application for compensation or gain.”   Mortgage loan originators employed by a federally insured depository institution or credit union or an owned and controlled subsidiary that is federally supervised must be registered.  All other mortgage loan originators must be licensed by the state.  There are no exceptions from the new licensing and registration requirements under the statute.

Under the Safe Act, all states must have a system of licensing in place for state-licensed residential mortgage loan originators by August 1, 2009 that meets the minimum standards provided for under the new federal law.   The federally-mandated requirements for state-licensed mortgage loan originators include, among other things, the following:

• All mortgage loan originators must provide fingerprints and undergo an FBI criminal history background check.
• All mortgage loan originators must provide authorization for the licensing authority to obtain a credit report.
• All mortgage loan originators must take 20 hours of approved pre-licensure education courses, which must include 3 hours of federal laws and regulations, 3 hours of ethics (which must include fraud, consumer protection and fair lending) and 2 hours of standards on non-traditional mortgage lending.
• All mortgage loan originators must pass a national mortgage test.

In addition to the above, state-licensed originators must meet certain standards.  A license will not be issued to any individual who: (1) has had an originator license revoked; (2) has had any felony conviction within the past seven years prior to application; (3) has had a felony conviction involving fraud, dishonesty, breach of trust or money laundering; and (4) who is unable to demonstrate financial responsibility and general fitness.   

Every state must license loan originators using the Nationwide Mortgage Licensing System & Registry (“NMLS&R”).  All state-licensed originators will be assigned a unique identifier that will apply in each state where the originator is licensed.  The U.S. Department of Housing and Urban Development (“HUD”) must determine that the state’s mortgage loan originator licensing standards meet the mandates of the Safe Act and that the state is participating in the NMLS&R.  If HUD determines that a state is not in compliance, HUD must implement a licensing system for mortgage loan originators in that state.

With respect to mortgage loan originators employed by deposit-taking banks, credit unions and their subsidiaries, the Safe Act also calls for federal banking agencies to develop a system of registration with the NMLS&R.  Like state-licensed originators, registered loan officers will also have to be fingerprinted and submit to a state and federal criminal background check.    

In Maryland, the Division of Financial Regulation in the Department of Labor, Licensing and Regulation is preparing to implement the new requirements.  Licensed lenders and mortgage originators in Maryland will observe that beginning January 1, 2009, all new and renewal licenses for mortgage lenders and originators will expire on December 31, 2009.  A significant change that will affect many licensees is that there will no longer be an exemption from the mortgage originator licensing requirement for loan officers employed by mortgage companies engaged solely in lending.  Moreover, owners of mortgage lenders and brokers who are engaged in mortgage loan originator activities will no longer be exempt from individual originator license requirements. 

If you wish to discuss how these new requirements may affect your business, please contact the author at 410-825-5223 orwolf@shumakerwilliams.com.

The information contained herein is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information contained in this blog should be construed as legal advice from Shumaker Williams P.C. or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. This blog is current as of the date of original publication.