A SAFE Refresher
Before we dive into today’s blog. Happy First Birthday to Huey, my quarantine pug! His birthday is a strange reminder of how long I’ve been working from home.
Earlier this year, the CFPB filed a lawsuit against a mortgage lender and its top executives for violation of multiple federal and state laws. Among a host of other offenses, the CFPB claimed that the lender violated the Truth in Lending Act and multiple state-level “SAFE Act” laws by hiring unlicensed and unregistered employees to conduct mortgage origination activities, including accepting mortgage applications and negotiating the terms of loans. The complaint alleged that unlicensed and unregistered employees completed applications for applicants online and also by taking intake calls where applicants and employees discussed loan options, rates, payment options, and other specifics pertaining to the applicant’s qualifications. In the end, the bureau requested injunctive relief, consumer redress, damages, and other costs to be paid by the lender.
Although this complaint centered around state-level licensing and registration requirements for mortgage loan originators, I thought this would be a good time to go over some of the federal SAFE Act requirements for our readers.
As background, the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) prohibits anyone from “engaging in the business of a loan originator” without meeting certain requirements, including licensing and registration, a background check, and educational requirements. The SAFE Act defines “loan originator” as an individual who both: takes a residential mortgage loan application; and offers or negotiates terms of a residential mortgage loan for compensation or gain.
Those meeting the SAFE Act’s definition of a loan originator are divided into two categories: loan originators who require a state license; and “registered” loan originators. A registered loan originator is one that works for a depository institution such as a credit union, a federally regulated subsidiary of a depository, or a lender regulated by the Farm Credit Administration. Registered loan originators are required to be registered with the National Mortgage Licensing System (NMLS). All other loan originators must be state licensed and registered with the NMLS.
We often receive questions about how to identify an employee that may be a mortgage loan originator under the SAFE Act’s definition. Appendix A includes illustrative examples of activities that may provide evidence as to whether a person is acting as a loan originator.
For example, an employee who takes applications for residential mortgage loans may do the following activities:
· Receive information that will be used to determine whether an applicant qualifies for a loan; or
· Input a consumer’s application information into an online application or database on the applicant’s behalf.
Additionally, activities conducted by an employee who offers or negotiates the terms of a residential mortgage loan may include:
· Presenting a loan offer to an applicant for acceptance; or
· Responding to an applicant’s request for different terms by presenting a revised offer that reflects the requested terms.
Ultimately, whether a particular employee meets the definition of mortgage loan originator is a fact-specific determination, but the definitions and Appendix A to the rule provide clarification about what kinds of duties trigger the registration requirement.
After a credit union makes the determination as to whether an employee is required to be registered as a mortgage loan originator, the credit union can move on to ensure other SAFE Act requirements are met, such as including the loan originator’s identification number on certain loan documents. More about that requirement can be found in this blog, Disclosing NMLS Unique Identifiers.
